Last week the IMF, whose normal role is that of stern disciplinarian to spendthrift governments, gave the US some unusual advice.
“Lighten up,” the fund urged. “Enjoy life! Seize the day!”
OK, fund officials did not use quite those words, but they came close, with an article in IMF Survey magazine titled “Ease Off Spending Cuts to Boost U.S. Recovery.” In its more formal statement, the fund argued that the sequester and other forms of fiscal contraction would cut this year’s US growth rate by almost half, undermining what might otherwise have been a fairly vigorous recovery. And these spending cuts are both unwise and unnecessary.
Unfortunately, the fund apparently could not bring itself to break completely with the austerity talk that is regarded as a badge of seriousness in the policy world. Even while urging us to run bigger deficits for the time being, IMF managing director Christine Lagarde called on us to “hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability.”
So here is my question: Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we will deal with fiscal issues of the 2020s, the 2030s and beyond?
No, it is not. And in practice, focusing on “long-run fiscal sustainability” — which usually ends up being mainly about “entitlement reform,” aka cuts to Social Security and other programs — is not a way of being responsible. On the contrary, it is an excuse, a way to avoid dealing with the severe economic problems we face right now.
What is the problem with focusing on the long run? Part of the answer — although arguably the least important part — is that the distant future is highly uncertain (surprise!) and that long-run fiscal projections should be seen mainly as an especially boring genre of science fiction. In particular, projections of huge future deficits are to a large extent based on the assumption that healthcare costs will continue to rise substantially faster than national income — yet the growth in health costs has slowed dramatically in the past few years and the long-run picture is already looking much less dire than it did not long ago.
Now, uncertainty by itself is not always a reason for inaction. In the case of climate change, for example, uncertainty about the impact of greenhouse gases on global temperatures actually strengthens the case for action, to head off the risk of catastrophe.
However, fiscal policy is not like climate policy, even though some people have tried to make the analogy (even as right-wingers who claim to be deeply concerned about long-term debt remain strangely indifferent to long-term environmental concerns). Delaying action on climate means releasing billions of tonnes of greenhouse gases into the atmosphere while we debate the issue; delaying action on entitlement reform has no comparable cost.
In fact, the whole argument for early action on long-run fiscal issues is surprisingly weak and slippery. As I like to point out, the conventional wisdom on these things seems to be that to avert the danger of future benefit cuts, we must act now to cut future benefits. And no, that is not much of a caricature.
Still, while a “grand bargain” that links reduced austerity now to longer-run fiscal changes might not be necessary, does seeking such a bargain do any harm? Yes, it does. For the fact is we are not going to get that kind of deal — the US just is not ready, politically. As a result, time and energy spent pursuing such a deal are time and energy wasted, which would be better spent trying to help the unemployed.