There seems to be a pattern developing: economists work for the Obama administration, they leave after a couple of years of service, and they call for additional economic stimulus. We’ve seen this with Christina Romer and Jared Bernstein, and today, Lawrence Summers makes it a trio.
The greatest threat to the nation’s creditworthiness is a sustained period of slow growth that, as in southern Europe, causes debt-to-GDP ratios to soar. Discussions about medium-term measures to restrain spending and raise revenue need to be coupled with a focus on near-term growth. Without the payroll tax cuts and unemployment insurance negotiated by the president and Congress last fall, we might well be looking at the possibility of a double-dip recession.
Substantial withdrawal of fiscal support for demand at the end of 2011 would be premature. Fiscal support should, in fact, be expanded by providing the payroll tax cut to employers as well as employees. Raising the share of the payroll tax cut from 2 percent to 3 percent would be desirable as well. At a near-term cost of a little more than $200 billion, these measures offer the prospect of significant improvement in economic performance over the next few years translating into significant increases in the tax base and reductions in necessary government outlays.
We averted Depression by acting decisively in 2008 and 2009. Now we can avert a lost decade by recognizing current economic reality.
To summarize: (1) we did some stuff that prevented things from getting worse; (2) doing what Republicans demand now would immediately hurt the economy; and (3) let’s boost the economy with a payroll tax cut and a few other things, including moving forward with existing infrastructure maintenance plans.
Atrios calls this approach “small ball,” and he’s right. I’d much prefer a more ambitious approach to economic growth and job creation — I’d also prefer a Congress that could pass it — and the Summers tack hardly qualifies as bold.
That said, maybe my expectations have slipped too low, but I’m at least glad to see Summers point in the right direction. For several months, if not longer, the only conversation the political world has tolerated has been one over cutting — reducing spending, reducing the debt, reducing the amount of money in the economy, etc. It was as if the entire establishment had collectively agreed to ignore what matters most, all at the same time.
Summers’ approach is clearly modest but he makes the case against the Republican plan and calls for some modest-but-meaningful measures that would likely give the economy a boost. I don’t know if the White House is inclined to take such advice, but at this point, given the larger circumstances, I’ll take good news where I can find it.