Mark Thoma:
Gridlock in Washington is hurting the US economy: Austerity Can Wait for Sunnier Days: I agree with Gavyn Davies that America has much to gain if Congress can make progress on the long-run budget problem. But I disagree on how soon the required austerity needs to begin.
Mr Davies acknowledges that “so far, the slower American approach to fiscal tightening seems to have worked rather better than the faster British approach,” and then he says, “But, in the longer term, the British approach may prove its worth.”... [T]he argument is, essentially, the same as Carmen Reinhart’s.... I disagree with them that immediate austerity is needed. The long-term budget problem in the US is driven mainly by rising health costs, and we have many years to go before this begins to create big budget problems. Thus waiting, say, two years to begin reducing the deficit will not substantially change the probability of big problems down the road. But delaying austerity measures avoids placing a further drag on an already struggling economy, so the likely benefits are relatively large.
One of the arguments for austerity is that it would give the Federal Reserve “increased room for manoeuvre to adopt further quantitative easing if the economy weakens further”. I agree that the Fed fears being placed in the position of appearing to monetise the debt, but again I do not think immediate action is needed. A budget plan that both political parties can agree to, which is implemented only when the economy is stronger, would do a lot to give the Fed the confidence it needs to act...
And:
Economist's View: The Number of Vacancies in Top Economic Posts is "Stunning": During the worst economic crisis since the Great Depression, you hope not to read that:
Even before Treasury Secretary Timothy Geithner made noises about stepping down, the number of vacancies in top economic posts within the Obama administration was stunning....
Senate approval is one obstacle, but recess appointments are an answer. Unfortunately, it's an answer the president refuses to use even though the economic situation more than justifies it. If Republicans make an issue of it, good, it's a chance for the administration to highlight the degree to which Republicans have put politics above the struggles facing typical households. But, nope, it's better to fight the fire short-handed -- a fire that has done and is still doing considerable damage to middle and lower class households -- than make Republicans mad. Republicans are running around with matches threatening to start new fires if they don't get their way, and the administration seems to think calm, rational negotiation in the face of all of this will somehow win the day instead of allowing Republicans to take them to the cleaners yet again.
Fail.
