Monthly Archives: June 2013

Amid all their vicissitudes, WikiLeaks founder Julian Assange and Edward Snowden, the National Security Agency leaker, can rejoice in their good luck in at least one aspect: they are not Ecuadorian journalists. They are very lucky that the president of the nation aggrieved by their leaks is Barack Obama of the US and not Rafael Correa.

Mr Correa, the self-anointed protector of global whistleblowers, doesn’t take too kindly to Ecuadoran journalists who report on the corruption and abuses of his government.

In 2012, according to Fundamedios, an Ecuadorian non-profit press watchdog, there were 173 “acts of aggression” against journalists, including one killing and 13 assaults. On February 16 2012, Catalina Botero, the special rapporteur for freedom of expression of the Inter-American Commission on Human Rights, and Frank La Rue, the UN special rapporteur on freedom of opinion and expression, expressed deep concern over a decision of Ecuador’s National Court of Justice. The decision affirmed the criminal and civil judgment against three executives and a journalist from El Universo newspaper, sentencing them to three years in jail and payment of $40m, for the publication of a column that offended, and allegedly criminally libelled, Mr Correa.

The Inter American Press Association calls a new media law pushed by Mr Correa “the most serious setback for freedom of the press and of expression in the recent history of Latin America”. The Colombian Association of Newspapers and Informative Media (Andiarios) calls it “the final stab” against freedom of expression in Ecuador.

A Washington Post editorial notes that Mr Snowden should be particularly interested in Section 30 of Ecuador’s gag law, which bans the “free circulation, especially by means of the communications media” of information ‘protected under a reserve clause established by law.’ The legislation empowers a new superintendent of information and communication to heavily fine anyone involved in releasing such information, even before they are prosecuted in the courts. In other words, had Mr Snowden done his leaking in Ecuador, not just he but also any journalist who received his information would be subject to immediate financial sanction, followed by prosecution”.

Yet, in an outburst of hypocrisy and double standards, Ricardo Patiño, Ecuador’s foreign minister, stated in a speech at the Organization of American States in August 2012 that: “The asylum granted to Mr Julian Assange is the struggle for freedom of expression, the struggle for human rights, the struggle for life, the struggle for the figure of asylum to be respected in any place in the world,” no less. After meeting with Mr Assange, he said: “I was able to say face to face to him, for the first time, that the government of Ecuador remains firmly committed to protecting his human rights. During the meeting we were able to speak about the increasing threats against the freedom of people to communicate and to know the truth, threats which come from certain states that have put all of humanity under suspicion.” It would be nice if Mr Patiño were as stridently concerned for the human rights and free speech of his fellow Ecuadorians.

At the same time as the Ecuadorian government is muzzling its internal critics, it is pushing itself forward on the world stage as a champion of the right to criticise governments. Journalists who know Ecuador know that the propaganda from Mr Correa and Mr Patiño in support of Mr Assange and Mr Snowden is empty and hypocritical propaganda. And we all know that, so far, the leaks have mostly targeted one government: that of the US. We are all looking forward with great interest and expectation to the WikiLeaks or Snowden revelations about the secret communications of the Russian, Iranian, Chinese or Cuban governments. Or even the Ecuadorian one.

The author is a scholar at the Carnegie Endowment for International Peace in Washington and author of ‘The End of Power’

This file aerial shot taken on September 15, 2010 shows the disputed islands known as Senkaku in Japan and Diaoyu in China in the East China Sea©AFP

During the recent US-China summit, one of the few issues on which Chinese tempers flared was that of a small group of rocks in the East China Sea – islands that the Japanese call the “Senkaku” and the Chinese call “Diaoyutai”. Unless handled more judiciously by leaders in both Beijing and Tokyo, there is real potential for a rupture in relations over the ownership of these barren islands.

Behind the scenes, all the key players in the rest of Asia and the US are urging Japan and China to handle the matter carefully, to let cooler heads prevail and change the subject. Still, the situation remains serious – if little understood. It has the potential to create a crisis that could rock northeast Asia, and have an impact on the global economy.

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For instance, recent economic analysis suggests that the boycott and financial retribution resulting from the tensions around these islands are now greater than the economic trauma that has followed in the wake of the nuclear disaster in Japan that struck Fukushima prefecture in March 2011.

Over the course of the past few months, Japanese coast guard vessels, backed by elements of the Japanese Self-Defence Forces, have operated at a very high tempo around the islands to prevent what in their view would be an unauthorised landing by either nationalist fishermen or angry demonstrators.

A corresponding group of Chinese fishing vessels, backed by Beijing, has staged thrusts and feints towards the islands, challenging Japan’s administrative control and testing Japanese responses and tolerance for risk. While there are obvious historical tensions and competitive power dynamics at work currently in the deteriorating relationship between Japan and China, it is over the islands that the circumstances are most fraught.

Why such concern? There are a number of reasons why these circumstances are worrying.

First, there is a feel of 1914 in the air. Just as with tensions between European armies at the turn of the last century, both Tokyo and Beijing are absolutely certain of the rightness of their positions. More importantly, both believe that with a little further pressure, the other side is on the verge of blinking and backing down. This has led to both sides taking operational risks that could easily escalate.

Second, both sides underestimate the risks of a crisis and believe that the situation can be “managed” indefinitely. However, the constant everyday deployments by small numbers of commanders operating with little sleep and much pressure, combined with the inherent tensions of close-quarter interactions risks miscalculation and inadvertence.

Third, the operational manoeuvring on both sides has, in a sense, “imprinted” a certain mindset on the new Chinese leadership under President Xi Jinping and Shinzo Abe, the Japanese prime minister, and his team. There has been a hardening of attitudes and mistrust that characterises the relationship.

Fourth, American counsel has had only limited effect on the conduct of both sides. Behind the scenes, Washington has made clear that its security ties animate its approach to a prospective crisis, but that the US seeks to avoid such a showdown through creative diplomacy and a greater recognition that everyone has bigger fish to fry in Asia.

While the US does not take an ultimate position on sovereignty, there is strong recognition that serviceable relations between Japan and China are a foundational piece of the modern Asian miracle. Without it, the region will lurch into an uneasy and tension-filled future.

Alas, these sentiments tend to animate Washington and the neighbours more than they do the policy makers and strategists in Japan and China. As it stands, both Tokyo and Beijing are determined to seek advantages in their island manoeuvres, play to nationalist domestic sentiments and avoid any appearance of backing down.

The writer is chairman and chief executive of The Asia Group and former assistant US secretary of state for east Asian and Pacific affairs

In December 2011, at a major conference in Bonn attended by ninety foreign ministers, the Taliban were on the verge of accepting US conditions that would allow them to open a political office in Doha. The Americans had held four rounds of direct secret talks with the Taliban that had started in November 2010 thanks to mediation mainly by German diplomats and Qatar.

However, at the last minute, Afghan President Hamid Karzai balked and refused to agree to the terms for opening the Taliban office, citing that he had not been adequately consulted by the US or Germans – which was untrue.

It has taken nearly two years for all the players to get back to where they were at Bonn that cold December and once again try and open a Taliban office in Doha. Yet the latest attempts to do so were shambolic – for which everyone, including the Americans, shares part of the blame. Continue reading »

Financial markets are on tenterhooks after yet another wild week. Triple-digit intra-day moves in the Dow have become the norm rather than the exception. Conventional asset class correlations have broken down. Virtually every financial security has lost money. And liquidity dislocations are common.

Damage is not contained to financial markets. If these factors persist, they will undermine global economic fundamentals, thereby threatening adverse vicious cycles. So here are six factors that speak both to recent developments and what may happen next.

1. Markets are currently subject to a generalized assault on risk, whether in government bonds, commodities, corporate credit, currencies or equities. This price collapse reflects a yet-to-be-completed re-calibration of the underlying liquidity paradigm to better align portfolios’ risk postures with the ability either to re-position or tolerate the return to less artificial market conditions.

2. The proximate cause for this turbulence is the change in how markets perceive central banks’ willingness and ability to support artificial asset prices. Whether it is Fed Chairman Ben Bernanke’s remarks on the prospective tapering of unconventional purchases of securities (the hawkishness of which surprised many, including me) or concerns about the effectiveness of the Bank of Japan’s unusual activism, the outcome is the same. Markets now doubt their prior (considerable) faith in the power of central banks.

3. Considerable disconnects between asset prices and more sluggish fundamentals make this phase particularly volatile and disorderly. Remember, central banks saw artificially-elevated asset prices as a MEANS to meet their growth, job and inflation objectives. But herd behavior among market participants ended up pricing this as an END itself, inserting an even bigger wedge between valuations and fundamentals.

4. Judging from Chairman Bernanke’s remarks, the Fed is confident that improving fundamentals will overcome current turbulence and validate high prices. With others less sanguine about economic prospects, prices are now converging down to fundamentals rather than the other way around.

5. Mr. Bernanke being right on fundamentals (specifically, growth, jobs and inflation) speaks to more than the prospects for containing disorderly financial markets. It is also essential for placing a firmer footing under a global economy undermined by recession in Europe, a slowing China, some worrisome policy incoherence in other emerging markets, and disappointing global policy coordination.

6. Whether you diagnose the main problem as one of deficient aggregate demand, insufficient supply responsiveness, a damaging debt overhang or some combination of all three – and, as you know, economists are all over the map on this – all agree that western economies are yet to restore the engines needed for escape velocity. This critical problem is at the heart of reconciling many national and international inconsistencies. In some cases, an endogenous healing process could prove sufficient over time, especially if not countered by political dysfunction and policy mistakes. In other cases, however, and particularly in Europe, the problem is exhausted growth models.

I leave you to make your own judgment as to how these issues will play out from here. From my perspective, it appears that the West is nearing the end of the era where central banks are able to impose stability on a still-inherently-unstable set of economic and financial fundamentals.

Going forward, fundamentals (rather than financial engineering) will play a greater role in determining the level and correlation of asset prices. Should this indeed materialize, you should expect the current phase of generalized disruption to give way over time to greater differentiation.

That is the good news. The bad news is that specifying the exact time is inevitably difficult given inevitable market overshoots and the unpredictable dynamics of a market exhaustion process. It is also possible, though far from an overwhelming probability, that central banks may try new circuit breakers (notwithstanding the debilitating effect on their credibility and on resource misallocation).

When we get there, look for the following sequencing given a less strong outlook for global growth.

German and US government bonds would likely to be among the first to decouple from cascading liquidity disruptions, especially given now that they have violently re-priced. This would be followed by the gradual restoration of order to markets, like Mexico and in Asia, whose main vulnerability is due not to internal policy distortions/weak fundamentals but rather the excessive participation of “crossover investors” (or what some call “tourist dollars” – as in the first to flee on signs of turbulence). In the meantime, brace yourself for bouts of unusual market volatility.

Before the onset of the global financial crisis, China could be relied upon to export its way out of trouble. Year after year, its exports grew at an annual rate well in excess of 20 per cent. As its current account surplus rose, its economy expanded with a swagger that became the envy of the world. Now, however, China’s export growth has faded, its current account surplus has almost disappeared and Beijing has had to search for alternative sources of rapid economic expansion. Continue reading »

In his Mansion House speech this week, George Osborne, chancellor of the exchequer, declared that the British economy is healing. But he also argued that the recovery still needs to be secured, and that policymakers need to continue to treat the ailments that brought it low in the first place.

The chancellor is right. There is strong evidence that prospects for the UK economy are, at last, looking up. A variety of indicators – of business and household sentiment,retail and car sales, housing market conditions and of the labour market – all suggest that the recovery is underway and is hopefully becoming self-sustaining.

This is unequivocally good news, though nothing should be taken for granted. We have been here before – notably in 2010, when the economy grew at around its trend rate for nine months, only for recovery to sadly evaporate. Three years later, some headwinds persist, such as the deleveraging that is still to be done – most obviously by the public sector, but probably by the private sector too. And there are other risks too, not least that of another flare-up of stress in continental Europe. Continue reading »

The UN reported last week that almost 100,000 people are estimated to have died in Syria to date, although it notes that the figures is quite possibly much higher. Syrian refugees and activists argue that as many as 250,000 may have died. Roughly two million have been driven from their homes. That is without even beginning to count the life-altering injuries, rapes, and shattering of homes, businesses and communities. Many of the pictures of Syrian towns look like bombed out cities from the second world war. Continue reading »

Markets rallied sharply late on Thursday on unconfirmed indications that the Fed may push back more forcefully on investors’ fear of a pre-mature tightening in monetary policy. To sustain the change in market sentiment for more than a few days, the Fed would need to follow up with greater details or, even better, have its beneficial market impact gradually superseded by an accelerated improvement in economic fundamentals.

I suspect that, having witnessed the recent market turmoil and fearing that the related liquidity disruptions could feed on themselves, Fed officials worry that investors are abandoning too quickly the notion of a “central bank put.” After all, financial markets in general, and equities and corporate bonds in particular, had surged quite nicely on the (repeatedly demonstrated) notion that central banks were investors’ best friends. Continue reading »

The hearings of the German constitutional court this week in Karlsruhe raise a series of interesting questions, in particular about the independence and accountability of the European Central Bank.

Concerning independence, it seems peculiar that the Court called a national institution, the Deutsche Bundesbank, to testify. Since 1 January 1999, the Bundesbank has been an integral part of the Eurosystem – the chain of institutions headed by the ECB – for its monetary policy functions.

Like all the other national central banks of the euro area, it is not responsible for deciding the single monetary policy of the euro area, but only for implementing it. How can part of an institution express a different opinion from the rest, without undermining its integrity, and thus its independence? Continue reading »

Artistic rendering of computer date©Dreamstime

Ageneration ago, autocrats could still hope to maintain control of information within their countries and to limit the ability of citizens to communicate with one another and the outside world. Today, people carry gadgetry that allows them to send ideas hurtling across borders, to connect with one another as never before.

Satellite television, mobile phones with cameras, Facebook, YouTube and Twitter have empowered the individual. Recent headlines remind us that the state is developing new tools of its own. But the decision by former US Central Intelligence Agency employee Edward Snowden to expose the National Security Agency’s data dragnets demonstrates that state-sponsored surveillance may prove as difficult a secret to keep as any other in an open society.

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A battle has now been joined. China still uses its “great firewall”, a system designed to monitor and filter internet traffic, but even the hardest of hardliners knows that China’s online conversation is expanding much faster than Beijing’s ability to manage it. Russian, Saudi and Iranian officials try to censor but they cannot return to the day when most messages with political content were broadcast from a regime-run radio or TV tower.

So states are learning that management of communications traffic need not depend only on censorship. It is more effective to use the flow of information than to block it, and governments are countering the revolution in communication technology with a “data revolution” that allows officials to move from defence to offence in their battle with perceived threats.

In short, the traffic data and content produced by the world’s emails, online searches and purchases, and the electronic signatures from all those texts and tweets, can be aggregated in real time. Those with access to that data – and the technology to use it – have captured something valuable.

Our use of online technology – whether for storage, communications or commerce – reveals more of who we are, what we think and what we want. Providing those who treat us as consumers with so much data can compromise our privacy. As the 2012 US presidential election proved, when both sides used it to identify potential voters, big data has now become an essential element of sophisticated political campaigns.

But it is a different matter when that information is passed to states, to those who think of us as voters, opinion-makers or troublemakers.

There is nothing inherently evil about big-data analysis. It can help bureaucrats meet the needs of citizens. It can help with the design of systems that improve public health, help street traffic flow more freely, target infrastructure investment, fight crime and protect national security. But who draws the line between activists and criminals? Or terrorists? Or potential terrorists?

Each government will use this material in its own way. There will be differences of opinion on how this information should be used, but all are vulnerable to abuses of power. As states become more deeply involved in data collection, officials will want maximum control of everything they think might be relevant for (what they consider) national security, in particular.

Google has endured multiple attacks on the Gmail accounts of suspected dissidents inside China, attacks engineered (or, at least, condoned) by Chinese authorities. But, as the NSA surveillance disclosures remind us, all governments are analysing data to protect against all sorts of threats.

Around the world, the race is on between a communications revolution that empowers the individual and a data revolution designed to protect the state. This contest will play out in different countries in different ways. Not all will prove effective in harvesting data; some will perform as poorly here as in other areas of governance.

But larger and more efficiently run governments will have much more success. We can’t yet know how this race will end, but it is a mistake to assume the state can’t hold its own for years to come. We can say with complete confidence that this competition has only just begun.

The writer is president of Eurasia Group and author of ‘Every Nation for Itself: Winners and Losers in a G-Zero World’

Swiss flag©Getty

I have vivid memories of watching western movies with my father. For a boy, seeing John Wayne get his way brought certainty: it was clear that, with enough firepower, might would prevail. Switzerland and its banks were slow to recognise this simple truth. The price to pay is now uncomfortably high.

In recent years, US authorities have taken an aggressive stand against Swiss bank secrecy on the grounds that US clients are using it to evade tax. Several years of convoluted negotiations between the two nations were characterised by Bern clinging desperately to the belief that the anonymity of alleged tax refugees could be preserved.

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These negotiations have now come to an abrupt end. In effect, the US has issued an ultimatum, giving Swiss banks 120 days to hand over the identities of presumed US tax evaders. In addition, banks will have to negotiate fines to compensate for past misdemeanours.

Those that do not take this option will potentially face severe challenges. In the best case, affected Swiss banks and bankers will no longer be able to operate in, interact with or travel to the US. At worst, bank collapses in the wake of any indictments would be a possibility.

There is a further challenge: under Swiss law, banks are forbidden to release information to foreign governments. So the government finds itself having to submit to parliament an unpopular and hastily written bill that would legally empower the banks to opt for transparency. This has enraged a proud, fiercely democratic assembly, which threatens to sink the bill.

How did Switzerland get itself into this mess and how can it get out of it? The root of the problem is twofold. First, there is the refusal by some in the country to recognise that cross-border tax evasion is no longer tolerated by the international community. Second is the adoption of an incoherent strategy of pursuing distinct and incompatible solutions with the US and Europe.

With the settlement between US authorities and UBS in 2009, the basic paradigm of how to progress emerged: a fine of $780m was paid; a deferred prosecution agreement was entered; and transparency was ensured by handing over identities of US citizens suspected of using UBS to evade US taxes. Bern enabled that settlement by resorting to emergency law to empower UBS to co-operate with US authorities.

Meanwhile, Bern embarked on a different strategy with its European neighbours, in particular Germany. The aim was to avoid the sharing of client identities entirely and instead settle on an anonymous tax collected in Switzerland and transmitted to the countries of residence of European account holders.

While this made sense as a way to deal with historic private banking assets, it was bound to fail as a stable, forward-looking framework. After all, why should a European country settle for a mere financial solution when the US had secured the identities of alleged tax evaders?

Now Switzerland and its banks find themselves under severe pressure from the US and with no solution at hand with Germany, Switzerland’s largest European partner. From here, there is only one way forward, comprising four distinct steps.

First, Swiss banks must quickly settle with the US. Ideally, the government will find a way to avoid drawing in parliament again, after it refused last week to vote on the government’s bill; and the banks can proceed in line with the framework set by the UBS settlement. After all, equal treatment in equal circumstances is a fundamental Swiss constitutional principle.

Second, the government and the banks must quickly recognise that client anonymity for tax purposes is a thing of the past. The specific contours of how information will be exchanged across sovereign borders will have to be worked out. Ideally, this will occur under the auspices of the OECD, a Paris-based think-tank, where Switzerland should demand a robust voice at the table.

Third, and crucially, Bern must settle the problem of undeclared legacy assets, largely of European origin, residing in its private banks. A significant share was deposited a long time ago in a different era with different norms. A pragmatic and morally defensible solution is for clients to pay a one-off tax on them to their respective countries of residence. In return, they would be allowed to preserve their anonymity. The level of tax could be broadly linked to the relevant rates in the European countries in question.

Finally, Bern must be steadfast in demanding access to the EU market for its banking services, enabling it to refocus the sector on its excellence in cross-border wealth management. This is equally in the interest of the EU: any other outcome will drive significant assets out of Switzerland and probably out of Europe.

In his first major movie, Wayne said: “There are some things a man just can’t run away from.” It is time for Bern to resolve the legacy problems of its financial sector and create clarity for a tax-compliant future.

The writer is vice-chairman of BlackRock and former chairman of the governing board of the Swiss National Bank

The US-China summit meeting between President Barack Obama and President Xi Jinping at the Sunnylands Estate in California is an institutional innovation in the relationship designed to bring more informality and true strategic dialogue to the highest levels. Recent meetings – numerous though they may be — have tended to resemble dueling recitations of diplomatic grocery lists.

Enormous preparation and detailed scripting tended to proceed every high level encounter, often depriving sessions from even modest improvisational exchanges (Author’s brief aside here: for the last four years I was one of the key diplomats inside the US government charged to prepare for just these kinds of meetings. This work can be heady and demanding when given tasks like negotiating the all-important joint statement; or it can seem trivial and inconsequential when asked to take the responsibility to make sure every protocol detail is in order, from the size of hotel fruit baskets to the number of cars in the official entourage). Let us just say that these are not impromptu encounters where the leaders are “winging it”. There are society weddings, Balanchine ballets, and North Korean placard twirling stadium exhibitions that are less choreographed than recent high level US -China engagements.

Continue reading »

Friday’s US jobs report is even more eagerly anticipated by financial markets now that investors are being pushed to take longer-term views that they had hoped to avoid, at least for now. With global equities selling off, tepid job creation would end up creating more turbulence and uncertainty. And reaction to something else, that is a number on either side of the distribution of possible outcomes, depends in large part on the faith that investors retain in the unquestioned powers of central banks. Continue reading »

Things are looking up. Led by rising house prices, the US recovery is likely to accelerate this year. Budget deficit projections have declined, too. And although the European economy is stagnant, there is some evidence that stimulative policies are gaining traction in Japan. So this is an opportune moment to reconsider the principles that should guide fiscal policy.

A prudent government must balance spending and revenue collection in a way that assures the sustainability of its debts. To do otherwise would lead to instability and slow growth – and court default and catastrophe. Deficit financing of government activity is not a sustainable alternative to increasing revenues or to cutting public spending. It is only a means of deferring payment. Just as a household or business cannot indefinitely increase its debt relative to its income without becoming insolvent, the same holds for a government. There is no permanent option of public spending without raising commensurate revenue.

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So it follows that there is, in normal times, no advantage to running large deficits. Public borrowing does not reduce ultimate tax burdens, and it tends to crowd-out borrowing by the private sector, which could otherwise finance growth. It encourages international borrowing, which means an excess of imports over exports. The private sector may also be discouraged from future spending if it fears that tax rises to pay for the deficit are on the horizon. That is why it is usually the job of the US Federal Reserve to manage demand in the economy by adjusting base interest rates, rather than the job of those in charge of deficit financing.

It was essentially this logic that drove the measures taken in the late 1980s and in the 1990s to balance the budget, usually on a bipartisan basis. As a consequence of policy steps taken in 1990, 1993 and 1997 it was possible – by the year 2000 – for the US Treasury to use surplus revenues to retire federal debt. Deficit reduction, the associated fall in capital costs and an increase in investment was an important contributor to the nation’s very strong economic performance during the 1990s when productivity growth soared and unemployment fell below 4 per cent. We enjoyed a virtuous circle in which reduced deficits led to lower capital costs and increased confidence, which led to more rapid growth, which further reduced deficits, reinforcing the cycle.

But responsible governing also requires recognising that when economies are weak and monetary policy is constrained, fiscal policy can have a large impact on economic activity. This can, in turn, improve revenue collections and reduce expenditure on social welfare. In such circumstances, attempts at rapid reductions in the budget deficit may backfire. That is where we have been in recent years. Circumstances have been anything but normal.

High unemployment, few job vacancies and deflationary pressures all indicate that output is not constrained by what the economy is capable of producing but by the level of demand. With base interest rates at or close to zero, the efficacy of monetary policy has been circumscribed. Under circumstances such as these, there is every reason to expect that changes in deficit policies will have direct impacts on employment and output in a way that is not normally the case. Borrowing to support spending – either by the government or the private sector – raises demand and therefore increases output and employment above the level they otherwise reach. Unlike in normal times, these gains will not be offset by reduced private spending because there is excess capacity in the economy. These so-called “multiplier effects” operate far more strongly during financial crisis economic downturns than in other times.

In a recent paper, J. Bradford DeLong, an economics professor at the University of California, Berkeley, and I estimated that contractionary fiscal policies might actually increase debt burdens because of their negative economic impacts. These estimates remain the subject of debate among other economists and policy should be driven by more than one study. But what follows from this analysis of the impact of fiscal policy?

First, the US and other countries will not benefit from further fiscal contraction directed at rapid deficit reduction. Not only will output and jobs suffer. A weaker economy means that our children may inherit an economy with more debt and less capacity to bear the burden it imposes. Already premature deficit reduction has taken a toll on economic performance in the UK and in several eurozone countries.

Second, while continued deficits are a necessary economic expedient, they are not a viable permanent strategy and measures that reduce future deficits can increase confidence. This could involve commitments to reduce spending or raise revenues. But there is an even better way. Pulling forward necessary future expenditures such as those to replenish military supplies, repair infrastructure, or rehabilitate government facilities both reduces future budget burdens and increases demand today.

This would be the right way to proceed – but getting there will require moving beyond political sloganeering for or against austerity, and focusing on what measures best support sustained economic growth.
The writer is Charles W. Eliot university professor at Harvard and a former US Treasury secretary

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