It’s not about the deficit, stupid

What will it take to get it through to politicians in Washington that their most urgent focus right now ought to be on stimulating the economy, not reducing the long-term deficit?

Perhaps advice from one of the world’s most influential financial advisors? In a prospectus for clients, Bill Gross, founder of PIMCO, excoriated both parties for moving away from Keynesian-type economic stimulus efforts and instead focusing on a wild hope that “if you balance it, ‘they will come.” He ridicules the notion that a balanced budget will lead to a resurgence in economic activity:

It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate.

In addition, he warns, as others have done, that moving too quickly on deficit reduction “could stultify economic growth.”

What should Washington be doing? Creating jobs directly through spending rather than hoping payroll tax cuts or other incentives will spur corporations, sitting on mountains of cash, to pick up the slack.

Government must step up to the plate, as it should have in early 2009. An infrastructure bank to fund badly needed reconstruction projects is a commonly accepted idea, despite the limitations of the original “shovel-ready” stimulus program in 2009.

There was a time when both parties realized the vital role of government in clawing out of a deep recession. Unfortunately, the success of Obama’s stimulus has been systematically downplayed even as its effect was blunted by huge cuts in government spending at the state and local level. Republicans successfully sold the idea that the stimulus was a failure, even though most economists recognize that it helped end the recession and kept the unemployment situation from becoming far worse.

Gross is no dyed-in-the-wool liberal. He is not an ideologue of any kind. His sole motivation is to get the economy humming again. That would benefit all Americans. Will politicians in Washington ever listen?



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