07 March 2011

Zakaria: It's the Investment Deficit, Stupid

I've occasionally been unimpressed by some of the arguments of Fareed Zakaria, who has seemingly bought into the budget-cutting mantra of the Republicans, when most rational, progressive economists understand that "procyclical" (i.e., tending to reinforce economic trends, whether positive or negative) budget cutting in time of recession makes recessions longer, deeper, and more likely to do permanent damage to the economy. What is needed is investment, and if we have to run deficits to do it, it's just necessary.

I liken it to a small business that has suffered a setback. They can cut back on spending, close down segments of their business, lay off workers, and shrink everything; or they can (1) figure out a viable strategy to recover the business; and (2) borrow to invest in growing out of their hole. The latter strategy is risky, but it's businesses that take those risks that recover from downturns and end up growing.

On a national level, we can't really go bankrupt; we will still exist no matter what happens. But we can create a long term decline and destroy what's left of the middle class. We can do that, and it looks depressingly like we are doing it. But we don't have to. We can pursue a strategy of infrastructure investment, economic security spending to make sure that demand doesn't collapse, and addressing the budget shortfalls from the revenue side, to begin to reverse some of the gross income inequality that has led to a lower multiplier effect from investment in this country for years now.

Turns out our friend Mr. Zakaria does get this, more or less: 

See this post from The Washington Note [Permanent Link]: "It's the Investment Deficit, Stupid" by Steve Clemons. (Commenting on Fareed Zakaria's piece in this morning's Washington Post titled "America's Grim Budget Outlook."

Clemons comments that Zakaria's "argument is less about budget cutting than the investment deficit America's future faces compared with other periods of its history."
 "Simply slashing the programs that build out America's innovation capacity and human capital and thinking all will be well flies in the face of America's past investments in itself. As I have written previously, President Obama's call for a five year, non-defense discretionary freeze in spending forfeits America's future to China."
I recommend following the link to read all of Clemons's short piece.

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