海角大神

Here鈥檚 a by the only-very-recently-former Council of Economic Advisers Chair, Christina Romer. The Times gave it the headline: 鈥淣ow Isn鈥檛 the Time to Cut the Deficit鈥濃�揺mphasizing this part of Christina鈥檚 message:

Now is not the time. Unemployment is still near 10 percent in the United States and in Europe. Tax cuts and spending increases stimulate demand and raise output and employment; tax increases and spending cuts have the opposite effect. This is a basic message of macroeconomics and a central feature of public- and private-sector forecasting models. Immediate moves to lower the deficit substantially would likely result in a 1937-like 鈥渄ouble dip鈥� as we struggle to recover from the Great Recession.

Some advocates of austerity argue that, contrary to the conventional view, fiscal tightening now would lower long-term interest rates and improve confidence so much that the impact could be positive. But an ambitious of the International Monetary Fund confirms that fiscal consolidations 鈥� that is, deliberate deficit reductions 鈥� typically reduce growth substantially鈥�

Taking budget actions now that would further increase unemployment would be not only cruel, but also short-sighted. The longer unemployment remains high, the more likely it is to become permanent as workers鈥� skills deteriorate and they gradually drop out of the labor force.

Such a situation would be terrible for both the affected workers and the long-run budget situation. Imagine a patient with a slow-growing tumor who is also recovering from pneumonia. The outcome is likely to be worse if the patient is not given time to recover before undergoing surgery.

But I add to the headline based on this part of Christina鈥檚 column (emphasis added):

WHILE immediate fiscal tightening isn鈥檛 wise for the United States, we do need to address the deficit. The best thing would be for Congress to pass a plan now that will reduce deficits when the economy is back to normal. France鈥檚 recent plan to gradually raise its retirement age to 62 from 60 is a classic example of such 鈥渂ackloaded鈥� reduction. President Obama鈥檚 proposal to eliminate the Bush tax cuts on high incomes is another: it would raise revenue by only $30 billion in 2011, but by more than $600 billion over the next decade.

History shows that well-designed backloaded plans are credible. For example, changes to Social Security eligibility and taxes have been passed years, if not decades, before they took effect. And in an environment like today鈥檚, when Congress has again agreed to pay-as-you-go rules, deviating from planned reforms forces countervailing actions.

Such backloaded deficit reduction would not hurt growth in the short run 鈥� and could raise it. If uncertainty about future budget policy is harming confidence, as some business leaders suggest, spelling out future spending and tax changes could be helpful. More important, showing that policy makers can come together and make essential decisions about our fiscal challenges would reassure all Americans that our economic future is better than the current grim reality.

That鈥檚 the key: don鈥檛 reduce Social Security benefits or raise taxes today, but give Americans the courage, and the rest of the world鈥檚 investors the faith, that we can commit to a plan that is full of hard, not-so-pleasant policy changes, but gets us on a sustainable path no sooner than our economy can handle it鈥揵ut not much later either.

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