Procrastination economics
By Fareed Zakaria
WashPost
Monday, December 13, 2010
This is the wrong time to raise taxes, say the politicians. The economy is fragile, say the economists. The recovery is halting, say the pundits. In a few years, they all affirm, we will need to get our fiscal house in order. Of course, just a few years ago, the economy was doing fine, and Washington decided it wasn't the moment to worry about the deficit. Instead, over the past decade, we cut taxes, added a massive entitlement program (prescription drugs for the elderly) and spent trillions on two wars. Somehow, no matter what the economic clock says, it's never time in Washington to cut spending or raise taxes. Call it manana economics.
The best one can say about President Obama's compromise plan with Congress is that it will do some short-term good - at long-term cost. The only parts of the plan likely to have a significant effect in stimulating the economy are the extensions of unemployment insurance, cuts in payroll taxes and, perhaps, tax credits for businesses ("perhaps" because they are temporary and thus would only bring forward investments). To get these measures, worth about $250 billion, Obama agreed to an extension of the Bush tax cuts that will cost around $750 billion, and eventually much more since the tax cuts are now more likely to become permanent. It makes the original stimulus plan of 2008 look stunningly efficient.
The first act of the newly empowered Republican Party has been to add a trillion dollars to the deficit. Republicans have now fully embraced the Keynesian arguments that they routinely denounced. John Maynard Keynes argued that when private demand weakens, the government should pick up the slack. He advocated either of two paths: government spending or tax cuts. Republicans have simply chosen the latter course.
So when will we get serious about our fiscal mess? In 2020 or 2030, when the needed spending cuts and tax hikes get much larger? If we cannot inflict a little pain now, who will impose a lot of pain later? Does anyone believe that Washington will one day develop the political courage it now lacks? And what if, while we are getting around to doing something, countries get nervous about lending us money and interest rates rise?
(More here.)
WashPost
Monday, December 13, 2010
This is the wrong time to raise taxes, say the politicians. The economy is fragile, say the economists. The recovery is halting, say the pundits. In a few years, they all affirm, we will need to get our fiscal house in order. Of course, just a few years ago, the economy was doing fine, and Washington decided it wasn't the moment to worry about the deficit. Instead, over the past decade, we cut taxes, added a massive entitlement program (prescription drugs for the elderly) and spent trillions on two wars. Somehow, no matter what the economic clock says, it's never time in Washington to cut spending or raise taxes. Call it manana economics.
The best one can say about President Obama's compromise plan with Congress is that it will do some short-term good - at long-term cost. The only parts of the plan likely to have a significant effect in stimulating the economy are the extensions of unemployment insurance, cuts in payroll taxes and, perhaps, tax credits for businesses ("perhaps" because they are temporary and thus would only bring forward investments). To get these measures, worth about $250 billion, Obama agreed to an extension of the Bush tax cuts that will cost around $750 billion, and eventually much more since the tax cuts are now more likely to become permanent. It makes the original stimulus plan of 2008 look stunningly efficient.
The first act of the newly empowered Republican Party has been to add a trillion dollars to the deficit. Republicans have now fully embraced the Keynesian arguments that they routinely denounced. John Maynard Keynes argued that when private demand weakens, the government should pick up the slack. He advocated either of two paths: government spending or tax cuts. Republicans have simply chosen the latter course.
So when will we get serious about our fiscal mess? In 2020 or 2030, when the needed spending cuts and tax hikes get much larger? If we cannot inflict a little pain now, who will impose a lot of pain later? Does anyone believe that Washington will one day develop the political courage it now lacks? And what if, while we are getting around to doing something, countries get nervous about lending us money and interest rates rise?
(More here.)
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