Friday, January 30, 2009

"Fiscal Straitjacket"

Economists Jeffrey Sachs (The End of Poverty) and Bill Easterly (The White Man's Burden) pretty much hate each other, or at least never see eye-to-eye. Until today. Easterly gives props to Sachs on his new blog and directs us to Sachs' recent op-ed in the Financial Times. Sachs (you may know him as Bono's "teacher," the guy who helped start the One campaign) has long advocated a massive increase in government spending on foreign aid (which Easterly opposes). Now, he's appalled at the haphazard massive increase in government spending in the form of the stimulus package (boldface mine):

Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package...

The most obvious problem with the stimulus package is that it has been turned into a fiscal piƱata – with a mad scramble for candy on the floor. We seem all too eager to rectify a generation of a nation saving too little by saving even less – this time through expanding government borrowing. First it was former US Federal Reserve chairman Alan Greenspan’s bubble, then Wall Street’s, and now – in the third act – it will be Washington’s...

If the present stimulus package is adopted without a medium-term plan, it will go the way of the earlier stimulus package and the Tarp, yet also put the US into a fiscal straitjacket that could paralyse public sector action in critical areas for a decade or more to come.

Combine this with my previous post about the "demographic timebomb" and you have a rapidly increasing number of reasons to move to Estonia.

I've read both Sachs and Easterly, and have made my students read them too. Easterly starting a blog this week was one of the best parts of my month.

2 comments:

Keith Walters said...

"for a decade or more to come!" Sadly, I don't thinkanyone cares about what happensa decade in the future because the presidents approval rating matters today, not a decade from now, and besides we want instant gratification! Honestly, American politics is bginning to closely resemble a high school popularity contest to the degree that I think very few politicians think little beyond what will get them elected next term.

Mel and Nancy Skinner said...

Read just the other day that Moldova, one of the poorest countries in Europe, now has one of the most stable economies in Europe. You already speak Russian and a bit of Moldovan....