Robert Rubin: Attention: Deficit Disorder

[RamboLiberal]

http://www.nytimes.com/2005/05/13/opinion/12rubin.html?hp=&pagewanted=print

THE United States has tremendous economic strengths but it also faces great challenges: the need to ensure national security; a newly competitive China and India; serious shortcomings in public education, basic research, infrastructure and other requisites for meeting that competition; and much else. An immediate and critical imperative is to redress fiscal imbalances.

Most pressing is the 10-year federal deficit, which most independent analysts project at $4.5 trillion to $5 trillion, assuming that the tax cuts passed in 2001 and 2003 are made permanent and that the alternative minimum tax is adjusted to avoid unintended effects on middle-income taxpayers. And while 10-year numbers can be highly unreliable, deficits are as likely to be higher as to be lower. Over the longer term, Social Security has a 75-year estimated deficit of $4 trillion, while the different components of Medicare, including its new prescription drug benefit, represent a fiscal problem of roughly $20 trillion.

Virtually all mainstream economists agree that, over time, sustained deficits crowd out private investment, increase interest rates, and reduce productivity and economic growth. But, far more dangerously, if markets here and abroad begin to fear long-term fiscal disarray and our related trade imbalances, those markets could then demand sharply higher interest rates for providing long-term debt capital and could put abrupt and sharp downward pressure on the dollar. These market effects, plus the adverse impact of continuing fiscal imbalances on business and consumer confidence, could seriously undermine our economy.

We have managed to avoid these market effects so far because private demand for capital has been relatively limited, and because the central banks of Japan, China and other countries have provided large inflows of foreign capital. A change in either of those circumstances, or simply a change of market psychology for whatever reason, could, however, turn these interest rate and currency risks into a reality.

[Lucky Luciano]

1. Time to buy some long term Captions!

[idlisambar]

2. Wrong deficit

Of the twin deficits, the trade deficit is of much more concern as it indicates a fundamental loss of industrial capacity. The mantra among prominent liberal-leaning economists and economic thinkers such as Rubin and Brad DeLong is that the budget deficit is the real issue and that the trade deficit is a symptom, but this is not a good reading of the situation. The budget deficit provides a good vehicle for foreign investment and thus has helped enable the trade deficit to reach the heights it has without a major currency correction, but the dollar will have to fall at some point anyway.

[muriel_volestrangler]

5. But the federal budget deficit can be directly affected by the government

whereas its ability to balance international trade is only indrect, and the methods for it highly disputed. The federal deficit is the responsibility of the government, and so it's natural to expect them to fix that.

[idlisambar]

6. whether the effect is direct is not important

A government has control over import tariffs and quotas (for example), the configuration of which has a very definite effect on the trade balance. Similarly the Federal Reserve sets the lending rate which has an indirect though very definite effect on the money supply and our financial markets. That certain issues cannot be affected directly does not lessen the government's responsibility to address them.

Concerning whether it is the government's responsibility to manage trade I think that it most certainly is. The government is the institution tasked with looking after the concerns of the state, and a nation's trade and industry clearly are issues of collective concern.

Regarding the fact that the methods for dealing with trade and industrial issues are disputed, the same could be said of the federal budget deficit -- the solutions there are hotly disputed. The difference is that the issues of trade and industry are not being thought about or disputed enough. The consensus that trade shouldn't be regulated is very much central to both parties, particularly at the highest levels.

[necso]

3. "Robert E. Rubin ... is a director of Citigroup." /nt

[housewolf]

4. Good article

Thanks for posting

[struggle4progress]

7. kick