By Kenneth Rogoff
By Brad DeLon
In order not to insert both articles, actually, what the second disagrees with.
First, a different assessment of the current policy path: Prof Rogoff believes that central banks worldwide are about to start to tighten – and will tighten faster the larger are current deficits, and so additional deficit spending over the next three years is unlikely to generate much if any demand. I believe that the Bank of England and the European Central Bank are about to do so – but should not. And I see the Federal Reserve as recognising the weakness of the recovery and as unwilling to take contractionary monetary policy steps to offset the effects of Office of Management and Budget fiscal policy or Treasury banking policy stimulus.
Second, a different assessment of the speed limit of recovery: Prof Rogoff sees the economy now as suffering from structural maladjustments generated by the expansion of the 2000s in which workers must be trained in new kinds of jobs and shifted over to different sectors in which they have no previous experience, and that that process cannot proceed rapidly without generating inflationary pressures that will destabilise confidence in price stability. I see an economy in which there is enormous slack pretty much everywhere – empty retail storefronts in Berkeley just to my left, anyone? – in which even the US housing stock is no longer above its trend, and in which we are currently building houses at half the trend pace. If output in even our single-family residential-housing sector is significantly depressed below its steady-state growth value – if, economy-wide, 10 per cent of the spending that ought to be there is missing – then we need not policies that carefully create new jobs only in the appropriate sectors but instead policies that create new jobs pretty much anywhere.
Third, an inappropriate linkage between short-term and long-term policy horizons that are not connected: as best as I can figure out, CBO director Doug Elmendorf’s judgment as expressed in his recent Long-term Budget Outlook is that if the policies enacted in the Obama Health Care Reform Bill can be sustained then it has reduced projected primary US federal deficits over the next 50 years by $12,600bn. That’s 16 stimulus packages the size of the Obama 2009 ARRA stimuli. That’s 370 times as much as this afternoon’s unemployment insurance extension. Solidifying the long-term foundations of fiscal sanity is, as Larry Summers said in his contribution, completely at right angles to the question of how much the US federal government does to boost demand and be a good customer for world businesses over the next two years when private households and businesses are not going to be such good customers. You can do both – and we should be doing both – and the Obama administration has taken major strides at doing both. And even big short-term stimulus measures have a trivial effect on the long-term budget picture.
DeLon's problem consists of 2 parts:
1) fiscal stability – main risk
2) spending cuts won't trigger a recession. thereby not increasing the debt burden even more
1)* main risk – the economic growth. deleveraging will take a long time anyway, painful and sad. if not, then the problem is absent in the principle. over-debt problem is not addressed gently. or economic growth, or F(P). in other words – the solution to the problem of public debt seems like a tit in the hands, in fact, it's pie in the sky.
2)* approve, that recovery will overcome cost reductions – strong кол. so far we see, that those who did not believe in the possibility of the Great Recession, didn’t believe in the “new norm”" and likely fiscal problems, continue to disbelieve in the possibility of long-term balancing below potential GDP (with a higher output, including due to a decrease in potential GDP)). though, this is the tenth case. the question of the risks that you are willing to take. The IMF has never understood the psychology of markets. Policy (Europe, germany) blinded by the problems of Greece in the first case and the euphoria of the export boom (which was already rather, than there is) in the second case.
Problems (?) Rogoff’a состоит из 2х частей:
1) favorable political moment, now you can do, what is difficult to do during a boom. this should not be underestimated.
2) & quot; Promise Tetanus & quot;. plan government spending cuts, it doesn’t mean to realize. as the practice of budget planning during the Clinton surplus shows, you can be very wrong in calculations (By the way, round trip)).
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my least favorite part of ektheory has always been comparing the effectiveness of economic policy, because it all depends on the context really. from historical features. Nevertheless. do not judge strictly, but now the increase in taxes is much preferable to the reduction in government spending (in fire order).