In Which the Financial Times Echoes St. Augustine of Hippo
"Give us fiscal continence--but not yet." That's a very good line. I am going to steal it.
You know, Warren Buffett and company could choose to make the Washington Post as informative and as witty as the Financial Times tomorrow--if they cared to. Both may die in the coming crash of the newspaper industry. But we all should really be doing everything we can to make sure that the FT and its culture survive: it is a global treasure.[1]
The FT:
US engine revs up: his spending spree is brittler than one would like. The durable goods spurt--even as disposable incomes fell--was powered by a car scrappage scheme that borrowed GDP from the future more than anything else. With motor vehicles excluded, output grew by only 1.9 per cent. Up to half of that in turn consisted of businesses rebuilding depleted inventories – a sign of optimism, but also, like cash-for-clunkers, a one-off boost to output that will not persist.
Which is why government action remains crucial to nurse this economy back to health. The administration is a good third of the way through a stimulus package that is indispensable to prevent growth from slowing down again. Federal spending rose briskly; now is not the time to cut this stimulus short.
Moreover, cash-strapped state and local governments are the dark spot in this improving picture: their spending was the only GDP component that went into decline. Congress would do well to consider using its ability to borrow cheaply to assist capitols and town halls banned from engaging in deficit spending on their own.
A credible plan for deficit-cutting is urgently needed; its implementation is not. Those who think deficit spending a sin may pray for government continence – but not yet.
[1] And that the *Washington Post dies quickly: it is not.
UPDATE: Paul Krugman and St. Augustine, 20 months ago:
St. Augustine and macroeconomic policy: I’ve had a few comments on my post about defining the macroeconomic problem, in which I say that the US economy is unbalanced, with too much consumption and too large a trade deficit, and that
the goal of monetary and fiscal policy should be to bridge the gap — to sustain spending until a falling trade deficit comes to the rescue, and to hasten the rise in net exports.
The objections run along these lines: since consumption has to come down, we should do nothing to delay the adjustment.
My answer, basically, is St. Augustine’s prayer:
Grant me chastity and continence, but not yet.
Ideally, we want the fall in consumption spending to move no faster than the rise in net exports caused by a weak dollar — if consumption falls too fast, we’ll have a deep recession.
Now, we can’t expect perfect timing, and my guess is that at least a moderate recession is already baked in. But we can try to make this less painful.
