Gorbachev helped destroy the Soviet Union by borrowing abroad and printing money to paper over the need for fundamental reform. How familiar does that sound? Simon Johnson has an interesting piece today about how to make it sound less familiar. His three-point plan is: Raise interest rates, begin to wean ourselves off Saudi oil, and bring the deficit down to about 5% GDP by next year. Hold it, five percent by 2010? You've got to be joking.
Here's a map of the CBO projected budget deficit as a percent of GDP (via WSJ):
In 2010, the CBO projects a budget deficit that appears to be 10 percent of our GDP. Simon Johnson wants to cut that in half. That's a great idea. It's also a $700 billion idea. Where are we going to find that kind of money?
Cutting $700 billion from an economy emerging from a recession is going to be painful, wherever you find the fat. So why not cut the freshest meat and seriously consider not spending most of the stimulus bill? I know, I know: It's a stimulus bill, we're in a recession, what am I thinking?
A January CBO report estimated that "only about $136 billion of the $355 billion that House leaders want to allocate to ... discretionary programs would be spent by Oct. 1, 2010." If Bernanke's right that the economy will trace the bottom of the U (or V, or whatever) late this fall, do we really need to see the stimulus coffer emptied 12 months later, especially with the $3-plus trillion budget being allocated to many overlapping areas like infrastructure?
I think the stimulus bill was the right thing to do at the time. It told consumers and employers that the government was going to throw an industrial-sized kitchen sink at the recession, and I think it helped keep consumer confidence buoyant. But given that the actual spending and effect has been plodding, and given that we can't paper-cut the deficit down unless we make some big, potentially painful decisions, it seems to me that Obama could do worse than quietly agreeing to sunset stimulus spending.