Jeffrey Sachs launches into a critique of fiscal stimulus in the pages of the Financial Times:
Keynesian stimulus was premised on four dubious propositions: that it was needed to prevent a global depression; that a short-run fiscal boost would jump-start the economy; that “shovel-ready projects†could combine short-term cyclical and long-term structural agendas; and, last, that the rapid rise of public debt occasioned by stimulus need not be a concern. That these ideas were so widely accepted was a testament to the perennial political attractiveness of tax cuts and spending increases.
His proposed alternative is founded on five principles:
- governments should work within a medium-term budget framework of five years, and within a decade-long strategy on economic transformation in which deficits are reduced
- governments should explain, and the public should learn, that there is little that economic policy can do to create high-quality jobs in the short term
- governments must of course also ensure social safety nets: income support for the poor, universal access to basic healthcare and education, a scaling up of job training programmes and promotion of higher education
- governments should steer their economies towards needed long-term structural transformation, i.e. the U. S. must emphasize exports rather than consumption
- governments and the public should insist that the rich pay more in income and wealth taxes – indeed, a lot more
A man’s reach should exceed his grasp or what’s a heaven for? I can’t imagine any American presidential candidate running on such a platform. Not and get elected at any rate.
He concludes:
We need, in sum, to reset our macroeconomic timetables. There are no short-term miracles, only the threat of more bubbles if we pursue economic illusions. To rebuild our economies, the watchword must be investment rather than stimulus.
Retort from Paul Krugman in 5…4…3…
I suspect Krugman would agree with much of what Sachs wrote.
Steve