Robert Barro has a piece in the NYT on saving the economy. Mostly its an exercise in “Now More Than Ever.”
That it is to say, here are some things that I think are generally a good idea. The economy sucks and people want to do something about it. So, now more than ever we should do what I have always wanted to do.
Now point of fact, I mostly agree with Barro’s long run vision. He wants to eliminate the corporate tax and enact a VAT. I can go with that.
However, again we shouldn’t view that as a substitute for solving our current problems. Moreover, I think this leads us down the wrong path
Today’s priority has to be austerity, not stimulus, and it will not work to announce a new $450 billion jobs plan while promising vaguely to pay for it with fiscal restraint over the next 10 years, as Mr. Obama did in his address to Congress on Thursday. Given the low level of government credibility, fiscal discipline has to start now to be taken seriously.
I do not think today’s priority should be austerity. Today’s priority should be expanding the economy, putting slack resources to work and easing the intertemporal strain on households.
To do this the government should take advantage of its ability to borrow in the credit markets freely, easily and at negative cost. This is a luxury afforded to few entities.
On a deep level this extends from the institutional framework and unquestionable coercive power of the United States government. No other collection of human beings has ever achieved such a thing and there are real yields to having it.
We should not let it wither on the vine.