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Wednesday, January 08, 2014

Rubin: Sound Government Finances will Promote Recovery

I don't have time to address this properly, hopefully you can do that in comments, but I'm kind of annoyed with Robert Rubin. He appears to believe in the confidence fairy:

Sound government finances will promote recovery, by Robert Rubin, Commentary, Financial Times: ... The US recovery remains slow by historical standards – even if recent signs of improvement are borne out. One reason is that our unsound fiscal trajectory undermines business confidence, and thus job creation, by creating uncertainty about future policy and exacerbating concerns about the will of Congress to govern. Business leaders frequently cite our fiscal outlook as a deterrent to hiring and investment.

Yes, but  they cite lack of demand as the biggest factor by some margin.

He's also worried about monetary policy:

Unconventional policy decisions by central banks are sometimes justified as the only available tools in the absence of necessary government policies. The right criterion for action, however, is not the absence of alternatives, but an assessment of costs and benefits. ...
In the US, there are widely posed questions about the benefits of QE3, but the risks are significant. ...
Confidence generated by a sound fiscal regime could help ameliorate ... risks. Such a regime should be enacted now to stabilise, or preferably reduce, the ratio of debt-to-gross domestic product over 10 years...

At least there's this (though I left out his call for entitlement reform as that annoyed me too):

Fiscal discipline could provide room for reasonable stimulus to create jobs. The partially cancelled sequestration should be fully rescinded to eliminate its fiscal drag. Fiscal funding should come largely from revenue increases...

He ends with:

Unconventional monetary policy and stimulus can be part of a successful economic programme for a period of time. But they are no substitute for fiscal discipline, public investment and structural reform.

So let me turn this over to you. Have at it...

    Posted by on Wednesday, January 8, 2014 at 11:10 AM in Economics, Fiscal Policy, Monetary Policy | Permalink  Comments (58)


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