It’s tempting to think Bill Gross’ perspective on the economy would be taken fairly seriously. After all, he’s the co-founder and co-chief investment officer of investment management giant PIMCO and one of the most influential investors in the world. He’s also, incidentally, a big-time Republican.
And given this background, it’s heartening to see Gross publicly make the case austerity won’t work, long-term debt reduction need not be policymakers’ principal focus, and public investments are vital to the economy, the sooner the better.
It is not the debt, however, but the lack of global aggregate demand that is at the heart of the crisis. As the entire world strives to put its own people to work before other nations do, policymakers constructively lower interest rates and delay sovereign, corporate and household defaults to provide breathing room. Fiscally, however, an anti-Keynesian, budget-balancing immediacy imparts a constrictive noose around whatever demand remains alive and kicking. Washington hassles over debt ceilings instead of job creation in the mistaken belief that a balanced budget will produce a balanced economy. It will not.
The president and Congress must recognize that an AA-plus country, to remain AA-plus, must focus on growth, not debt reduction, in the short term. We have a debt problem — but primarily a crisis of aggregate demand. A 21st-century Keynes would have recognized this and sounded the alarm, pointing out that policymakers from a fiscal perspective are pointing us toward recession and the destructive 1930s instead of a low-growth but still breathing U.S. economy of the 21st century.
Look, I know this isn’t new. I also know we’ve seen these kinds of analyses before.
But I feel the need to keep banging the damn drum anyway. I’m naively hoping that some combination of policymakers, Wall Street giants, economists, and media professionals, all saying the same thing, might have some effect on the larger discourse, and might make sensible economic policy slightly more realistic.
Indeed, in my ideal scenario we’d have the basis for a real grand bargain — addressing our short-term economic problem (high unemployment and weak growth) and the long-term fiscal problem (large deficits and growing Medicare costs).
Policymakers could, in theory, use this dynamic to strike a credible deal — Dems would get stimulus now to boost the economy and create jobs, and Republicans, in exchange, would get a deficit-reduction agenda for the coming years. We could even start by using the list of job-creating public investments that Republicans themselves came up with.
I know, I’m a dreamer, but here’s hoping I’m not the only one.