The Long and Short of Fiscal Policy

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The U.S. recovery is evidently faltering. The case for further fiscal stimulus is strong, so long as credible steps are taken to contain long-term borrowing. In principle, this isn't so difficult to do. In practice, such is the present dysfunction of U.S. politics, it looks impossible. I'd say the blame belongs about equally to anti-stimulus Republicans and pro-stimulus Democrats. As I write in the FT:

This laughably simple prescription - maintain or add to stimulus for the time being, plan to reduce the debt once the economy strengthens - is evidently beyond both branches of government. In Congress, Republicans sense triumph in November. A failing recovery is their friend, so long as they can blame the administration's supposed fiscal irresponsibility. The strategy is working. It even has the party voting to block extensions to unemployment benefits, which under the circumstances is not just bad economics but an affront to ordinary decency.

But where is Barack Obama's leadership when you need it? The White House is letting Republicans win the argument by refusing to address the long-term issue. The president set up a fiscal commission to make recommendations - a classic stalling device. He and his party, if they believe in anything, believe in bigger government. Yet he has tied his own hands on revenues by promising no tax increases for most Americans. He has pushed through an unpopular healthcare reform that only he and his most besotted allies believe will cut costs.

Is it surprising that the country thinks fiscal policy is out of control, even to the point of looking warily at extended jobless benefits? To get its way on short-term stimulus, the White House needs to talk seriously about long-term budget policy. The silence is deafening

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