As the U.S. government and governments in Europe respond to the global economic slump with conservative austerity measures, it’s easy to forget that the overwhelming professional economic consensus is that depressed countries that can afford to should be doing the opposite — ramping up government purchases of goods and services and putting off the budget cuts and tax increases for a few years.
This isn’t even close to what’s happening. And as the space between what these experts think should happen and what global elites are actually doing grows, the experts’ forecast is becoming more and more pessimistic.Nowhere was this gloominess more clearly worn than at a symposium hosted by the New America Foundation in downtown Washington Wednesday evening.
The event itself centered on an October paper called “The Way Forward” by Daniel Alpert, Robert Hockett, and Nouriel Roubini, which explained both the sources of U.S. economic woes, and what needs to be done to fix them. But the paper’s authors, and the expert panel they invited to discuss it with them, all agreed that American and European politics are so out of step with the proper diagnosis and treatment that the country is likely to hobble along for years — and could even experience another recession.
In their paper, and their presentation, the authors listed several steps governments and government-aligned institutions could take to hasten recovery. But in the U.S., the most important step would require more, not less, government spending — and that’s just not in the cards given the current state of American politics.
“We need to do something about the demand side or we’re going to be facing a Japanese-style, continuous stagnation,” said Alpert, managing partner of investment firm Westwood Capital, in his opening remarks.
To provide the stimulus, the authors strongly favor the U.S. government acting as a direct purchaser and hirer, instead of increasing program benefits and otherwise putting more money in consumer pockets, as the payroll tax cut is designed to do. But in either case, the government isn’t prepared to act in proportion to the problem, if at all.
“The problem of course is that two of the three pillars require Congress to spend a very large amount of money,” said Liaquat Ahamed, a panelist, investment manager, and author of the book Lords of Finance: The Bankers Who Broke the World. “And the third pillar requires other countries to do the right thing in a way they don’t want to do at the moment.”
Ahamed was more optimistic than most of the panel that a large coordinated international monetary easing could serve as a “Plan B” if legislatures in the U.S. and Europe can’t get their acts together.
But close observers of U.S. politics know how unlikely that is. Bruce Bartlett, a former Reagan adviser who is a harsh critic of the current Republican party explained why.
“Basically we’re still stuck in the situation we were three years ago and we haven’t made any progress at all except that our problems are much worse because of political reasons, because we now have a crazy party in charge of one of the Houses of our Congress and they won’t allow anything to happen because it’s in their vested interest to make things worse,” Bartlett explained in his typically exasperated way. “Plus they have a theory that is completely nuts…. I’m very depressed. I’d love to see some program like this [paper] enacted. I see zero chance of it happening. The most we can hope for is that a complete crazy person like Newt Gingrich gets the Republican nomination, the Republicans lose so badly that they lose control of the House and don’t get control of the Senate and then maybe in a year we can finally talk about doing something rational such as what is discussed in this paper.”