What Economic Policy "Should" Be in 2012…
Christina D. Romer:
CDR: THE United States faces two daunting economic problems: an unsustainable long-run budget deficit and persistent high unemployment. Both demand aggressive action in the form of fiscal policy. Waiting until after the November elections… would be irresponsible…. [T]here are plans to address both problems that should command bipartisan support.
On the deficit, the big worry isn’t the current shortfall, which is projected to decline sharply… it’s the long-run outlook. Over the next 20 to 30 years, rising health care costs and the retirement of the baby boomers are projected to cause deficits that make the current one look puny…. We already have a blueprint for a bipartisan solution. The Bowles-Simpson Commission hashed out a sensible plan of spending cuts, entitlement program reforms and revenue increases that would shave $4 trillion off the deficit over the next decade…. Congress should take up the commission’s recommendation the first day it returns in January.
But we can’t focus on the deficit alone. Persistent unemployment is destroying the lives and wasting the talents of more than 13 million Americans. Worse, the longer that people remain out of work, the more likely they are to suffer a permanent loss of skills and withdraw from the labor force…. [T]he evidence that fiscal stimulus raises employment and lowers joblessness is stronger than ever. And pairing additional strong stimulus with a plan to reduce the deficit would likely pack a particularly powerful punch for confidence and spending…. [E]ven better would be measures that increase employment today, while also leaving us with something of lasting value. Because many people worry about increasing the role of the federal government, why not give substantial federal funds to state and local governments for public investment? Tell them that the money has to be used for either physical infrastructure like roads, bridges and airports, or for human infrastructure like education, job training and scientific research. Then let the states, cities and towns figure out what would work best for their citizens.
Ronald Reagan once said that “there are simple answers — there just are not easy ones.” What needs to happen on fiscal policy is relatively straightforward. The hard part is getting politicians to do it.
The problem is, as Christy knows, that voting for the bills she endorses--bills that would command near-unanimous Republican support if proposed by a President McCain or Romney or Gingrich or Santorum or Huntsman--is inconsistent with the Republicans' primary goal of making Obama look like a failure. What she sets out should command bipartisan support, but it does not because of the broken Republican Party.
And until the Republican Party as we know it ceases to be, I don't see a way forward to a stronger and more prosperous America through Congressional action. And even though the Federal Reserve, the Treasury, and the FHFA have powerful discretionary macroeconomic tools they could use to produce a more prosperous economy, the groundwork for them to use those tools to help boost employment in America has not been laid.
