Friday, February 06, 2009

Jeffrey Sachs on TARP

I'm confused.

In the short space of a week two writings by Jeffrey Sachs float reflections on economic matters. The first link in Financial Times talks about TARP., specifically in the form of a stimulus bill. Sachs' language strikes me as somewhere between critical. and harshly negative.

See what you think:

Jeffrey Sachs in FT, The stimulus is a fiscal straitjacket: (H/T)

...Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package.

...the US is now inured to corruption and in such a rush that even billions of dollars of public funds shovelled into Merrill’s private pockets in broad daylight barely merited a day’s news cycle.

...The most obvious problem with the stimulus package is that it has been turned into a fiscal piƱata – 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.

...Rather than soundbites about ending pork-barrel projects or scouring the budget for waste, or about the relative multipliers of tax cuts versus spending increases (both of which depend on expectations about the future, a point mostly overlooked in the debate), we should be reflecting on certain basic fiscal facts, the most important of which is that the US government faces huge and potentially debilitating structural deficits as far as the eye can see.

Here is the same writer, this time in The Guardian,commenting again (I think) on the same proposals. In Rewriting the rule book for 21st-Century Capitalism H/T Mark Thoma he comes across as a convert, a true believer in keeping alive dreams, hopes and positive expectations.

...His macroeconomic stimulus may or may not cushion the recession, and bitter partisan fights over priorities no doubt lie ahead. But Obama is already setting a new historic course by reorienting the economy from private consumption to public investments directed at the great challenges of energy, climate, food production, water and biodiversity.

...Obama recognised that the near-bankruptcy of the [automobile] sector calls for a hands-on approach to transform the core of automotive technology itself. In the Obama strategy, GM will not be closed to punish it for past corporate or societal mistakes. It's worth far too much as a world leader in the electric vehicles of the 21st century.
Conservatives are aghast. The bail-out of the auto industry was hard enough to swallow. Government investments in infrastructure and research and development are viewed with scorn, compared with the tried and true (if disastrously failed) tax cuts of the Bush era. Rightwing pundits bemoan the evident intention of Obama and team to "tell us what kind of car to drive". Yet that is exactly what they intend to do (at least with regard to the power source under the hood), and rightly so. Free-market ideology is an anachronism in an era of climate change, water stress, food scarcity and energy insecurity. Public-private efforts to steer the economy to a safe technological harbour will be the order of the new era.


John F Kennedy used to tell the Irish tale of the boys who would throw their hats over the high wall, to ensure that they would make the heroic efforts to surmount it. Obama is throwing the hat over the wall of environmental crisis, and asking us to surmount it together. This is a new era of public action, with the US back in the lead, and we will all find a new economy and new opportunities on the other side of the wall.

It may be an urban legend, but I'm reminded of that old line from cowboy and Indian movie days: White man speak with forked tongue.

Help me out here. What am I missing?

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