Freitag, Juni 29, 2007

Why the Democrats aren't ready for the White House...

I've met Robert Reich a few times and he's one of the sharper folks out there, even if he is a Democrat.

He's got an excellent commentary in today's FT, unfortunately behind their subscription firewall, but here's the link to the begin of what he says.

Fundamentally, the Democrats aren't ready for the White House: they continue to not understand how the economy works and what role the President can play in setting up the parameters for long-term, sustained growth.

Reich properly takes the Democrats under Clinton to task for failing to invest in US infrastructure, lambasting Bush as well, but also goes the further step of showing that the current gaggle of presidential candidates fails miserably in understanding what needs to be done.

Fundamentally, infrastructure investments are both critical and unloved. They cost real money, tie down real resources, and those that benefit include everyone, but most importantly business profits from good infrastructure. We're talking things like streets, pipelines, rail, ports, transportation centers, etc.

Now, there is a good argument to be made that this isn't the job of the government, but rather of private businesses to do so (basically Bush's position: let companies make more money and they will invest where it is needed. The problem is that what a company might need isn't necessarily what we all need, and there is the problem of the commons, i.e. there are investments that benefit everyone, but no single person will invest, as they cannot recoup their investment).

Getting back to Robert Reich's point: the Democratic contenders for 2008 don't understand that a budget deficit is not necessarily a bad thing. This is completely strange and bizarre, as it was the Democrats who back when larded Reagan's budget up with civilian pork. Reagan was happy to do so, since he understood that the SovUnion was at the breaking point, and he was more than happy to throw money at the problem, which solved the Cold War by breaking the SovUnion once and for all.

Running a budget deficit responsibly means investing the difference between revenues and outlays: the German constitution, as a matter of fact, requires this, something that the last several German administrations have chosen to ignore and is quietly accepted because to expose it would mean, fundamentally, declaring the German government to be in violation of the German constitution (actually, it's called the Basic Law).

Running a budget deficit purely for consumption purposes makes only sense when you are using the government to spend the economy out of a recession: Roosevelt II understood that.

Now the Democratic contenders are talking about having to balance the budget, the absolute need to balance the budget: there is no such thing. They fear that the Republicans will use the tax & spend Democrat argument against them, rightfully so. But the reason that the Republicans can use that argument so tellingly against Democrats is that the Democrats have been, in the past, currently and will continue to do so in the future, fiscally irresponsible, as they have fundamentally not understood that political pork projects, the kind that bought Democratic acquiescence to Bush's policies in his first term, isn't the same as infrastructure renewal and investment projects that are needed to ensure stable and solid long-term growth.

And that is why the Democrats aren't ready for the White House. I'm not saying that the Republicans are either: the idea that the private sector will invest where needed for their own growth does not address the problem of the commons.

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