First a word on the US situation, which is a little farther advanced than it is in Canada. This is Jeffrey Sachs – not the most conservative economist — via Dan Drezner and Mark Thoma:
The most obvious problem with the stimulus package is that it has been turned into a fiscal piñata – with a mad scramble for candy on the floor. We seem all too eager to rectify a generation of a nation saving too little by saving even less – this time through expanding government borrowing. First it was former US Federal Reserve chairman Alan Greenspan’s bubble, then Wall Street’s, and now – in the third act – it will be Washington’s….
Sach is most concerned about the mid-term, structural effects of massive deficits, suggesting the stimulus spending is going to put the US in a “fiscal straightjacket.”
The biggest question I have over yesterday’s Canadian budget is connected to the 5-year time frame. How do we know right now is the right time to blow the lid off the safe? What’s the global economic situation going to be like in a few years? What assurance do we have that other unexpected events aren’t going to emerge and call for an even greater response?
The whole thing gives me the impression that people are approaching this as if it’s a computer simulation, played within a static framework in which we know for sure, for example, one of the BRIC countries (or a more established economy, for that matter) isn’t going to have a major meltdown, or that the price of oil isn’t going to go to $10 or $300.
And that kind of thinking is exactly what got us into this mess in the first place… [this deserves an exclamation]…!
Instead of learning from our mistakes — mistakes pointed out forcefully and repeatedly by Nassim Taleb, one of the few people who seems to have any sense of what was happening leading up to the crisis — we seem to be relying even more confidently on our flawed assumptions.
The volatility we’ve seen in the past 6 – 8 months alone should make us concerned. If anything, 2008 should have made us aware of our own ignorance and fallibility. Instead, we’re proceeding with an astonishing degree of faith in Keynesian economic theory – as if Keynes’s proposals well into the Great Depression, at a time when government deficit was virtually unheard of, are precisely relevant at this point in our crisis, in our time when the world is already deeply in debt – unaware of how our human ego leads us to have such confidence in these supposed laws and our subsequent designs built on them.
Even Sachs shows a certain economist’s blindness when he points out that “the Clinton-era boom began in 1993 with tax rises and a congressional rejection of a fiscal stimulus package.”
How much of the Clinton era was actually about Clinton’s policies (and how much of the Reagan/Thatcher era, for that matter, was about their policies), and how much was it about things going on in the world — like the emergence of the internet and the proliferation of, not just businesses like Google, but resources that enabled the boom via day-trading, securitization, and quantitative finance?
And how much will the nefuture be affected by those extraneous factors that budgets don’t account for?…
By the way, yes, I have stepped up to the plate with rough idea of somewhat, which my own idea of how to proceed… More to come on this subject, I’ll bet…
