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Saturday, December 04, 2010

Resolving Uncertainty About Future Growth

Christina Romer:

It’s the Big Questions That Slow Growth, by Christina Romer, Commentary, NY Times: Uncertainty is frequently blamed for the sorry state of the economy — for why businesses are not investing strongly in new equipment or hiring more workers, and for why consumers are not spending freely. On Wall Street, it’s even said that government meddling is the main culprit and that political gridlock is the cure.
This is a serious misreading of the situation. Uncertainty is likely holding back the recovery. But its sources are far more fundamental than the tax and environmental issues that typically top the list of complaints. And the solution is certainly not for the government to do less. Rather, it needs to do much more. ...
The deepest and most destructive uncertainty we face centers on the overall health of the economy and its prospects for growth. ... Because we are in largely uncharted territory, figuring out how and when the economy will recover is much harder than usual. ...
How do we resolve uncertainty about future growth? The Federal Reserve, Congress and the president need to reaffirm that they will do whatever it takes to restore the economy to full health. They could take a lesson from President Franklin D. Roosevelt, who declared in his 1933 inaugural address that he would treat the task of putting people back to work “as we would treat the emergency of a war.”
They should follow up with powerful fiscal and monetary actions to create jobs — coupled with a concrete plan for tackling our long-run budget problems. We are at a critical moment. With many in Congress opposed to further jobs measures and tax increases of any kind, the chances of prolonged gridlock are high.
But such policy paralysis would be a disaster. It would make uncertainty more acute by leaving us to the unpredictable forces of natural recovery and with no prospect of resolving our unsustainable deficits. Aggressive action to restore growth and face up to our long-run challenges is the only true and lasting solution.

    Posted by on Saturday, December 4, 2010 at 07:22 PM in Economics, Policy | Permalink  Comments (15)


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