> AMERICA CANNOT AFFORD TAX CUTS
> Op Ed by
> C. Fred Bergsten
> Director
> Institute for International Economics
>
> Published in Fianancial Times, January 11, 2001
Bergsten's argument is kind of the mirror image of Wynne Godley's argument, which was published in an FT Op Ed about 2 weeks later called "Triple the Tax Cuts." Bergsten argues that because we have no private savings the tax cuts would have to be financed from overseas. Godley argues that the causal arrows run the other way -- that negative savings won't continue because it can't; that when it stops, it will first stall the economy (since the boom is domestic demand driven) and then throw it into reverse (since bad times make people save more); this will cause an improvement in the current account balance the hard way, drop the dollar, and thus prevent the Fed from being able to lower interest rates any lower because of interest rate pressure; and thus the only place to get demand for the economy is to throw the fiscal stance into reverse, from surplus to deficit. He agrees that fiscal loosening is inappropriate to fix short term problems, but thinks it's perfectly appropriate to fix imbalances in the medium term, and since it takes a while for fiscal manuevers to get into gear, now's the time to get started. Though of course the world would be a better place if the tax cut were also just.
Michael
__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com