28 February 2013

Flying Solow

As frequent reader may remember, I've a soft spot for Robert Solow. He spoke to my senior seminar. Short of Samuelson, also at the Tute at the time, you couldn't get much higher on the economics totem pole.

Back before the Arab Oil Embargo, the standard beneficent description of Federal debt was, "don't worry, we owe it to ourselves". After 1973, that wasn't so much true. In the run up to The Great Recession, some wags among the pundit class were heard to say, "the US economy is based on minimum wage workers buying McMansions with Chinese money". That was largely true, too.

Today, Solow takes on debt in the NY Times. Not terribly surprisingly, I find he's right. The only kvetch I have with his prose is that he doesn't directly repudiate the "government debt steals from private capitalists". American corporations are sitting on more than a trillion dollars, much of it stashed overseas, attempting to extort even less tax than their already sweet deal.
In the long run we need a clear plan to reduce the ratio of publicly held debt to national income. But for now the best chance to reinvigorate the economy, spur business investment and encourage consumer spending is through public borrowing and spending. Instead, we're heading into an ill-advised, across-the-board austerity program.

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