Robert Rubin disappoints Felix Salmon:
Rubin’s unhelpful fiscal exhortations: Oh dear, what have I signed up for? No sooner do I agree to start blogging more about economic journalism than I find this op-ed from Robert Rubin in the FT. It’s a pretty sorry specimen, and I do hope it’s not representative of the genre. The op-ed, which is written in borderline-unreadable technocratese, has a simple structure: there are headwinds in the economy. What should we do about them? Spending more might be problematic. Expansionary monetary policy likewise. So what should be done? The administration should be more business-friendly. And it should put together a “serious fiscal plan”.
Rubin is long on assertion and scaremongering, and short on actual argument.... It’s really hard for me to see how Rubin gets to his “likely on balance” conclusion that stimulus will be counterproductive. Does Rubin really think it probable that the announcement of extra government spending would cause some kind of crazy market crash? And “business uncertainty about future economic conditions and policy” is a pretty weak replacement for the bond vigilantes....
Rubin is incredibly light on the specifics of exactly what he means by “real, trusted and enacted long-term structural deficit reduction.”... Rubin wants to see “public investment and reform in economically critical areas, such as education, healthcare costs, infrastructure, immigration and others”; he gives no corresponding list of areas which might see spending cuts. And his list of tax hikes is limited to letting the Bush tax cuts on income over $250,000 a year expire. Which is all well and good, but is hardly going to move the needle on the debt/GDP ratio. Rubin ratchets up the unintended irony in his conclusion:
Despite substantial legislative actions over the past year and a half, there is widespread and serious concern about the willingness to work across party and ideological lines and to make the tough decisions, necessary to meet our challenges.
Well yes, Bob. But how do you expect the government to make tough decisions if you, a semi-retired technocrat with no public office at all, can’t even bring yourself to name them? It’s all well and good to talk about fiscal prudence in the abstract: the difficult thing is enacting it in reality. And you’re not being remotely constructive on that front.
It is disappointing.
And it is not just Rubin: all the bipartisan technocrats of the center appear to be wringing their hands and calling for a plan without saying what it should be.
Here is what Rubin should have said.
Here is the platform for the bipartisan technocrats of the center:
Ten-Year PAYGO: a 2/3 supermajority in both houses commitment to ten-year PAYGO starting now, and a pledge by every president and presidential candidate that they will veto all bills that do not meet ten-year PAYGO standards. Everything Congress passes must be projected to reduce the outstanding national debt within ten years.
"Starting now" means starting now: no middle-class tax cut this month or next month without a pay-for within ten years. Taking current law rather than current policy as our baseline and requiring PAYGO for everything gets our 25-year fiscal gap down to 1.2% of GDP (as opposed to 4.8% of GDP) and gets our 50-year fiscal gap down to 0.8% of GDP (as opposed to 6.9% of GDP). Our long-run deficit problem is overwhelmingly due to things that Congress is about to do, not things that Congress has done.
Carbon tax: a 1.0% of GDP carbon tax is the best policy to provide American businesses with the incentives they need to invent the clean energy technologies of the future. Half of it should be channeled into the Social Security Trust Fund to improve its solvency. Half should be used to help close our remaining operating fiscal gap.
Pick-your-poison: Additional stand-by tax increases and stand-by spending cuts to close the remaining 0.3% of GDP long-run fiscal gap.
Private add-on Social Security accounts: At their option, all Americans can add up to 2% of their Social Security wages to a private Social Security account run through the U.S. government's Thrift Savings Program. Private contributions will be matched two-for-one by the federal government out of carbon tax revenue
Recovery: when every fired local, state, and federal worker takes a private sector job down as well and when the U.S. government can borrow at today's absurdly-low terms, it is criminal stupidity not to pull government spending forward into the present and push taxes back into the future (all within the ten-year PAYGO rule, of course). Since the macroeconomic situation is worse now than it was ever projected to get when the first Recovery Act was passed and since the U.S. government can borrow on better terms now than it could at the time of the first Recovery Act, it is time for a second Recovery Act--fifty percent federal government purchases and aid to the states, fifty percent tax cuts--somewhat larger than the first was.
Certainty: The principal sources of uncertainty in American economics right now are three: we don't know how the long-run fiscal gap will be closed (but we think it will be), we don't know how our health-care system will be reformed and transformed (but we know it will be), and we don't know what our policy toward global warming will be in a generation (but we know that we will have one). The best things the government could do to diminish uncertainty would be to: (1) commit immediately to the full implementation of the version of RomneyCare-plus-cuts-in-Medicare-and-taxes-on-gold-plated-health-plans that was this year's PPACA, (2) commit immediately to a long-run climate policy in the form of a carbon tax coupled with research incentives for future energy technologies, and (3) commit immediately to a plan to cover the long-term fiscal gap.
That's a seven-point plan. That's a seven-point plan that everybody centrist and deficit-hawkish in the reality-based community should be willing to commit to today.