Thought du Jour

Nothing new here, but this is a nice summary of recent history.

If the polls are right, the Republicans are on course to capture the House on November 2. At their head are leaders who voted for every spending measure George W. Bush requested, including the unfunded $600bn expansion of prescription drugs for seniors, which was probably the most egregious instance of corporate welfare in modern US history, as well as the unfunded $260bn highways bill that included the infamous “bridge to nowhere”.

These are the same lawmakers who inherited the largest budget surplus in modern US history, when Mr Bush came to office in 2001, and bequeathed the largest ever peacetime deficit to Barack Obama in 2009. Like the Bourbons, they appear to have learnt nothing and forgotten nothing. For the sake of America’s economic future, and everyone else’s, friends of the US must hope its voters have not forgotten their recent history.

Edward Luce, “Flaws in GOP’s pledge to balance budget”, Financial Times, 30 September 2010.

Luce points out also that what “the $320bn the [Republican] party has specified in spending cuts over the next decade is dwarfed by the $4,000bn in tax cuts that it promises’. The Republicans are not fiscal conservatives.

[I]t is difficult to envisage a robust configuration of the world economy without large net capital flows from the high-income countries to the rest. Yet it is also hard to imagine that happening, on a sustainable basis, if the world’s biggest and most successful emerging economy [i.e. China] is also its largest net exporter of capital.

Martin Wolf, “Currencies clash in new age of beggar-my-neighbour”, Financial Times, 29 September 2010.

It is absurd that capital flows from poor countries to the wealthy rather than the reverse. But isn’t it true that the world’s biggest high-income country is also its largest net importer of capital? Is it reasonable or fair to expect only high savers (exporters of capital) to adjust?

(I had intended to post this at the FT, but was too slow. Several readers have already written similar comments.)

Update: Martin Wolf, in a brilliant (ungated) article, addresses my concern:

[A] shift towards surplus in the current account of the debt-burdened economy … requires changes in the balance between saving and investment in the rest of the world. In practice, surplus countries do not want to make the adjustments needed to allow the US, UK and other former deficit countries run huge current account surpluses at full employment levels of income. So this way out is also largely blocked, alas.

Martin Wolf, “We can only cut debt by borrowing”, Martin Wolf’s Exchange, 26 September 2010.

Slate and NPR’s “Planet Money” have translated the US Federal Reserve’s latest statement on the economy.

Here is a sample paragraph:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

Board of Governors of the Federal Reserve System, “Press Release”, 21 September 2010.

And here is the translation:

You know how we’re always worried about high inflation? Now we’re worried about low inflation. Crazy, right? High unemployment keeps wages low and prices flat. And most experts think that’s not going to change anytime soon. That’s why we think inflation will probably be low, too low, for a while.

Jacob Goldstein and Jeremy Singer-Vine, “Things Are Going to Be Bad For a While”, Slate, 21 September 2010.

Ben Bernanke should consider hiring these journalists to edit press releases. This latest release is so boring that it even lacks a title, other than classification as an “FOMC statement”, whatever that is.

HT: The Browser