Tuesday, August 23, 2011

Judge Richard Posner on economic recovery and the deficit

This whole article is well worth reading.

A sample:

The problem is not the level of the debt but its growth. In the seven years between 2000 and 2007 (the last year before the financial crisis that triggered the current depression), the public debt grew in real (that is, inflation-adjusted) terms by 56 percent, the consequence of reckless spending and tax cuts by the Bush administration. Between 2007 and 2012 (the debt in fiscal 2012, which ends September 30 of next year, is of course an estimated number), a shorter period, the nation’s public debt will have grown by another 134 percent. . . . These annual rates of growth vastly exceed the rate of the nation’s economic growth even in prosperous times, and if they continue will bankrupt the federal government.
Unfortunately, even when the economy recovers, and tax revenues increase, the federal deficit will continue to rise because of the rapid growth of entitlement expenditures—primarily Medicare and Social Security and, because of the health-reform law, Medicaid. . . .
[T]he deficit, politics aside, should be manageable. But it’s worth pointing out that anything that takes money out of the economy, such as reducing federal spending or increasing federal taxes, will exacerbate the current depression. Consumers will have less money to spend, and this will discourage employers from hiring. So the reforms that I have been discussing should be phased in gradually over a period of years.
But it’s not clear that we have enough years. . . .
Posner concludes that we're in "a quandary. I don’t see a way out of it. I hope others do."


Hoosier Daddy said...

I read this earlier and while I share the author's concerns, I have to question a couple items.

Not defending Bush, but what policies exactly were roots of the crisis? My question is sincere as I'm not aware of any significant policies or legislation that planted the seeds of the economic downturn.

Second is why is the author surprised at Obama's failures? We elected a man who had little to no work experience, a bland state senator record, an even blander US Senator record and who never articulated a coherent plan or even an outline as to how to remedy the economy other than throwing 3/4 of a trillion dollars in the air and hoping for the best. Quite frankly, I'm more surprised the economy isn't worse.

That being said, the debt and deficit can only be fixed long term by mass reforms of entitlements and slashing defense by third at minimum. And yes taxes across the board have to be raised. As Posner said, none of these are going to be popular and it will take a Congress and Executive willing to commit political hari kiri for the long term health of the nation which means we're probably screwed.