For all his talk of change, Barack Obama will start his presidency much as George Bush did: with a huge fiscal stimulus aimed at boosting an ailing economy and promoting some pet objectives. The need for stimulus is far greater than in 2001. America is in what could be its deepest recession since the Depression. With interest rates close to zero, the Federal Reserve is out of conventional monetary ammunition, so fiscal policy must do the lion’s share.
The problem with this is that higher spending and tax cuts will only make a big budget deficit even bigger. This danger does not justify penny-pinching now: that could merely prompt a bigger collapse in economic activity and even larger deficits. But Mr Obama should do what Mr Bush never did””and link the upcoming splurge to long-term fiscal reform.
The hole in America’s balance sheet is clearly partly Mr Bush’s fault. Even if you strip out the cyclical economic effects, the 1% surplus he inherited had become a deficit of more than 2% of GDP last year. But other things are at work. The collapse of the credit bubble will reduce tax revenues. The government has taken on big liabilities in its efforts to prop up the banking system. Above all, the first baby-boomers retired last year: as their numbers grow, the cost of the two big retirement programmes, Social Security (pensions) and Medicare, will soar.
Act in haste, repent at leisure
[i]Poor Richard’s Almanack[/i]
It’s far easier for politicians to promise goodies to real, live voters today and push the reckoning off on those that are not yet old enough to vote and, face it, the pols will be dead by time the fecal matter hits the ventilator, so who’s going to stand up to the “gimme” lobby and risk unelection?
Elections have become, in the immortal words of HL Mencken, advanced auctions of stolen goods.
It will only happen if there is anyway for the Democrats to blame the Republicans for any unpopular fallout.