"To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above. These choices are difficult, and it always seems easier to put them off -- until the day they cannot be put off any more."
Truer words were never spoken, nor less acted upon by the speaker. Bernanke is the man who has done more to put off the day of reckoning than anyone else in the world, and he is providing liquidity by the supertanker load.
........Instead, Bernanke thinks the U.S. should charm the world into extending more credit, by offering what he called "a credible plan for meeting our long-run fiscal challenges."
A plan -- not action. As Robert M. Bleiberg, who thundered from this page from 1955 to 1991, said many times, "One needn't be a flim-flam man to be a central banker, but it helps."
........A free translation: If we can con the world into thinking we are serious about curbing our deficits and reducing our debts in the future, the world's investors and savers will lend us even more money at lower prices right now. Then we will have more economic growth and we will curb our deficits without pain.
It's humbug. Economic growth comes from savings and investment, not credit-card consumption.
A New Record?
We have a lot of credit-card consumption from a federal deficit that is officially forecast to hit $1.6 trillion this year.
The Council of Economic Advisers last week issued its quarterly report on a small piece of the spending binge, last year's economic-stimulus act, which the council proudly described as "the boldest countercyclical fiscal expansion in American history."
The council reported that $202 billion has been spent and $160 billion delivered as tax cuts, stimulating the economy by $362 billion since last April, and that between 2.2 million and 2.8 million jobs have been "saved or created" as a result. These must be the good-paying jobs so much beloved by politicians and union activists, since the spending works out to more than $72,000 per job per full year. Weekly earnings in the private sector averaged $763 in January 2010 -- an annual rate of $39,676.
........Where has the rest of the money gone? That is a question that a macroeconomic model cannot answer. We may hypothesize that it went for saving, for debt repayment or for spending that did not create or save jobs. For examples in the last category, extended unemployment compensation, subsidies for unemployed persons' health insurance, and first-time home-buyer tax credits probably did not create jobs, except very indirectly.
Or, thinking dangerously, perhaps the psychological effects of the spending program were negative, so that economic activity and job-creation were lower than they would have been in the absence of a stimulus.
These are interpretations that would be hazardous to the Obama administration's health, so we emphasize that they did not come from the Council of Economic Advisers. But we conclude that macroeconomics, at least when it is in the service of politicians, is no less a flim-flam game than central banking.
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