Too Early to Tell if the Sequester is a Bad Idea
Posted at 4 p.m. on March 6
John Carney considers the possibility that the current policy stance of the US — “short-term deficit cuts while ignoring long-term deficits” — might actually be correct, despite the prevailing conventional wisdom against sequestration.
“How could short-term spending cuts and tax hikes help in a sluggish economy? The most obvious answer is that they could encourage central bankers to persist in policies aimed at providing monetary stimulus… Monetary easing encourages the growth of aggregate demand through processes closer to free markets than fiscal policy driven by government spending.”
“But what about the fact that entitlement spending is going to explode when all those baby boomers retire?… The point is that we’re going to work, one way or another, to keep an elderly population in decent conditions… Perhaps by keeping the drain on resources front and center, leaving the long-term deficit high keeps us aware of the economic challenge of an aging population.”