God Help Us: Now Even Jeffrey Sachs is Fretting About Deficits
Even Jeffrey Sachs is fretting about deficits. He shouldn't, and we shouldn't think that red ink is going to drown us all.
In an editorial for the Financial Times, Sachs, a professor at Columbia University who has been a tireless advocate of more development aid for poor countries, is not bashful:
Mainstream Keynesian economics is facing its last hurrah. The global fiscal stimulus championed last year by the Obama administration is coming undone, repudiated by the same Group of 20 that endorsed it last year. Now, against a backdrop of a widening sovereign debt crisis, we need to abandon short-term thinking in favour of the long-term investments needed for sustained recovery.To be fair, Sachs doesn't dislike all government spending. His real issue is with spending that is a flash in the pan, that functions only as a sugar high before business crashes again. It's worth noting in this context that fiscal stimulus in the United States, contrary to what you may have heard, created jobs. The evidence is overwhelming. To the extent that it did not do more, chalk that up to state and local governments that are slicing budgets to the bone.
Sachs' piece caught me off guard because I had had a lengthy conversation with him at the World Economic Forum in Davos a few years ago. He compared the amount of development aid to Africa to a bucket brigade at a time when the continent needed firehoses. More was better. There was no other way to really kickstart development. The comparison is not perfect, but that does not really jibe with a "last hurrah" for Keynesian economics, unless he's given up on Africa, which I doubt is the case.
But if even Jeffrey Sachs, who thinks more spending works in poor countries but not rich ones, is badmouthing stimulus, is the intellectual foundation really crumbling? Not really. In fact, as David Leonhardt points out in today's NY Times, the real problem with stimulus is political:
In the face of near-united Republican opposition, top Democrats have decided that the political costs of aggressively pushing for more stimulus are too high. Any new bill will help only on the margins, and it will give Republicans another chance to blame Mr. Obama for the deficit, even though the current deficit is more of their own party's making. The Democrats may be right, too. We will never know, because we will never be able to re-run the 2010 election under a different set of circumstances.In other words, fiscal stimulus works. But it is out of favor because some people find it politically advantageous to badmouth it. Remember that the next time you meet someone who is unemployed, or face that same fate yourself.
Image courtsey In My Name via Flickr Related:
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- Give It a Rest, Already -- the U.S. is Not Like Greece
- Sneaky: Washington is Passing a New Stimulus Package
- Unemployment: It Does Not Pay To Be Young In This Economy
- The Ghost of Herbert Hoover Prowls State Capitals As Well