Jeffrey Sachs argues that the time for Keynesian economics is over, and the age of budget pruning is upon us. In his plan to steer the world economies, he proposes:
First, governments should work within a medium-term budget framework of five years, and within a decade-long strategy on economic transformation. Deficit cutting should start now, not later, to achieve manageable debt-to-GDP ratios before 2015.
I agree in theory, but disagree about timing. Now's a little soon to begin cutting into the deficit, especially with private sector growth extremely weak. But Sachs is right that we can start tending to the medium-term budget, and the presidents' announced spending freeze and deficit commission begin that process.
Second, governments should explain, and the public should learn, that there is little that economic policy can do to create high-quality jobs in the short term...
Third, governments must of course also ensure social safety nets: income support for the poor, universal access to basic healthcare and education, a scaling up of job training programmes and promotion of higher education.
Wait a tick. Helping the poor, shoring up health care benefits, and protecting education are important goals. But that's ... what the Recovery Act achieved, and what later stimulus bills re-achieved. According to the Government Accountability Office, "about 71 percent of the federal outlays has been provided through the increased Medicaid Federal Medical Assistance Percentage (FMAP) and the State Fiscal Stabilization Fund (SFSF) administered by the Department of Education." Raising FMAP means the federal government shoulders the burden of Medicaid for cash-strapped states. The SFSF is a fund states often tap to replenish education spending. What's more, four of the five stimulus bills passed since the Recovery Act were designed to extend and renew unemployment benefits, i.e. provide "income support for the poor."
It's impossible for the United States to reinforce its safety nets, provide income support for the poor, protect health care and eduction or scale up job training programs without passing more spending bills. But more spending bills would raise the deficit and qualify as Keynesian stimulus. Jeffrey Sachs supports the goals of deficit spending but not the term, itself. Besides raising taxes on rich people, what exactly would he do differently?