The Washington Post

Leave the economy alone

Is this the year the U.S. economy finally turns the corner? The messages are mixed — from slower than predicted growth in the fourth quarter to higher than expected housing starts. The mixed messages seem to mirror the lack of consensus among economists and politicians about what ails our gross domestic product (GDP) and what might restore it to health.   

Is it weighted down by a burdensome tax and regulatory structure? Or does it suffer from disinvestment in infrastructure, science and education that could stimulate growth? Both sides have passionate arguments, but since the passage of the government stimulus, all official economic intervention has stemmed from an unelected body, the Federal Reserve. Congress, led by the Republicans, has done nothing but fuel uncertainty.

So where are we? Is the economy getting better, or worse?  A recent article by the head of research at the normally bearish Roubini Global Economics suggests it could be getting better, although with the usual disclaimers about uncertainties. I find the article intriguing because it answers what I was told convincingly five years ago was the central problem facing the economy: the need to deleverage massive household and corporate debt. Indeed, the board meeting I attended at one of the world's largest corporations was told that deleveraging might take a decade and that until it was completed, the economy would grow anemically, if at all. There are now signs that households have finally paid down their debt and are beginning to spend again and that their largest personal assets, their homes, are starting to increase in value. The importance of this to our overall prospects for more robust economic growth should not be underestimated. From the Roubini researcher’s report: 

“The end of private-sector deleveraging, and, eventually, credit growth increasing to the level of economic growth, will boost U.S. growth closer to its potential rate of 2.5-3.0%.(GDP) It will allow for slower savings growth, more investment and smaller fiscal deficits.”

Wouldn't that be nice? The question is what, if anything, the government can do to help? Here's an answer that will be hard for politicians to swallow: Do nothing. The economy is finally doing what it's supposed to do: heal itself, and the proper course for Washington is to do no harm.  That means no games on the debt ceiling, and no stupid plans to radically cut spending and raise taxes in the near term. Fight about immigration and guns; leave the economy alone.


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