Doctors used to believe that by draining a patient’s blood they could purge the evil “humors” that were thought to cause disease. In reality, of course, all their bloodletting did was to make the patient weaker and more likely to succumb.
Fortunately, physicians no longer believe that bleeding the sick will make them healthy. Unfortunately, many of the makers of economic policy still do. This economic bloodletting isn’t just inflicting vast pain; it is starting to undermine our long-run growth prospects.
Some background: For the past year and a half, policy discourse in both Europe and the US has been dominated by calls for fiscal austerity. By slashing spending and reducing deficits, we were told, nations could restore confidence and drive economic revival.
AUSTERITY MEASURES
The austerity has been real. In Europe, troubled nations like Greece and Ireland have imposed savage cuts, even as stronger nations have imposed milder austerity programs of their own. In the US, the modest federal stimulus of 2009 has faded out, while state and local governments have slashed their budgets, so that overall we have had a de facto move toward austerity not so different from Europe’s.
Strange to say, however, confidence hasn’t surged. Somehow, businesses and consumers seem much more concerned about the lack of customers and jobs, respectively, than they are reassured by the fiscal righteousness of their governments. Moreover, growth seems to be stalling, while unemployment remains disastrously high on both sides of the Atlantic.
But, say apologists for the bad results so far, shouldn’t we be focused on the long run rather than short-run pain? Actually, no: The economy needs real help now, not hypothetical payoffs a decade from now. In any case, evidence is starting to emerge that the economy’s “short run” troubles — now in their fourth year, and being made worse by the focus on austerity — are taking a toll on its long-run prospects as well.
Consider, in particular, what is happening to the US’ manufacturing base. In normal times manufacturing capacity rises 2 or 3 percent every year. However, faced with a persistently weak economy, industry has been reducing, not increasing, production capacity. At this point, according to US Federal Reserve estimates, manufacturing capacity is almost 5 percent lower than it was in December 2007.
What this means is that if and when a real recovery finally gets going, the economy will run into capacity constraints and production bottlenecks much sooner than it should. That is, the weak economy, which is partly the result of budget-cutting, is hurting the future as well as the present.
Furthermore, the decline in manufacturing capacity is probably only the beginning of the bad news. Similar cuts in capacity will probably take place in the service sector — indeed, they may already be taking place. Coupled with long-term unemployment at its highest level since the Great Depression, there is a real risk that many of the unemployed will come to be seen as unemployable.
EDUCATION CUTS
Oh, and the brunt of those cuts in public spending is falling on education. Somehow, laying off hundreds of thousands of schoolteachers doesn’t seem like a good way to win the future.
In fact, when you combine the growing evidence that fiscal austerity is reducing our future prospects with the very low interest rates on US government debt, it’s hard to avoid a startling conclusion: Budget austerity may well be counterproductive even from a purely fiscal point of view, because lower future growth means lower tax receipts.
What should be happening? The answer is that we need a major push to get the economy moving, not at some future date, but right now. For the time being we need more, not less, government spending, supported by aggressively expansionary policies from the Federal Reserve and its counterparts abroad.
It’s not just pointy-headed economists saying this; business leaders like Google’s Eric Schmidt are saying the same thing, and the bond market, by buying US debt at such low interest rates, is in effect pleading for a more expansionary policy.
To be fair, some policy players seem to get it. US President Barack Obama’s new jobs plan is a step in the right direction, while some board members of the Fed and the Bank of England — though not, sad to say, the European Central Bank — have been calling for much more growth-oriented policies.
What we really need, however, is to convince a substantial number of people with political power or influence that they’ve spent the past year and a half going in exactly the wrong direction, and that they need to make a U-turn.
It’s not going to be easy. But until that U-turn happens, the bleeding — which is making our economy weaker now, and undermining its future at the same time — will continue.
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
In an article published on this page on Tuesday, Kaohsiung-based journalist Julien Oeuillet wrote that “legions of people worldwide would care if a disaster occurred in South Korea or Japan, but the same people would not bat an eyelid if Taiwan disappeared.” That is quite a statement. We are constantly reading about the importance of Taiwan Semiconductor Manufacturing Co (TSMC), hailed in Taiwan as the nation’s “silicon shield” protecting it from hostile foreign forces such as the Chinese Communist Party (CCP), and so crucial to the global supply chain for semiconductors that its loss would cost the global economy US$1
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
Sasha B. Chhabra’s column (“Michelle Yeoh should no longer be welcome,” March 26, page 8) lamented an Instagram post by renowned actress Michelle Yeoh (楊紫瓊) about her recent visit to “Taipei, China.” It is Chhabra’s opinion that, in response to parroting Beijing’s propaganda about the status of Taiwan, Yeoh should be banned from entering this nation and her films cut off from funding by government-backed agencies, as well as disqualified from competing in the Golden Horse Awards. She and other celebrities, he wrote, must be made to understand “that there are consequences for their actions if they become political pawns of
RSS