‘The stimulus substituted for thinking. The stimulus substituted for planning.’ 

Jeffrey Sachs is not known as some kind of conservative — you can tell just by reading the CNN transcript which I have excerpted below. But he still believes that the Obama administration’s stimulus plans, and especially its hopes of reviving the economy by boosting consumer spending, are in error.

Here is a sympathetic critique of the Obama administration’s attempted large-scale vote-buying scheme, otherwise known as the Recovery Act:

FAREED ZAKARIA: Jeff, people would think of you, and I tend to think of you, as a guy with left-wing political leanings. You know, generally speaking a liberal. But the stuff you’ve been writing recently has been very worried about the deficit, which one traditionally tends to think of as more of a kind of concern of conservative economists.

So why are you not comfortable with the Keynesian arguments of the administration, of economists like Paul Krugman, which is the economy is doing badly, the government needs to step in, spend a lot more money?

JEFFREY SACHS, ECONOMIST: I think that just trying to recreate a consumption boom like we had and that collapsed after 2008 is impossible. So I think that the –

ZAKARIA: Impossible because people were doing it based on maxing out on their credit cards, taking money out of their houses. In other words, it was an expansion of credit that was causing the consumption.

SACHS: We were on a binge, and the binge ended, as all binges do. And what I found surprising about the Obama approach was that it basically was trying to get people to start spending again where they were saying we’re tired, we’re tired, we need to save a little bit. And once one realizes that consumption is going to be down, we’d need a different approach from simply “stimulus,” from cutting taxes for households to spend more.  It’s not going to work. They’re going to save it. They’re going to pay down debt.

Simply trying to give tax incentives so people buy houses — the housing market is at rock bottom in historical terms at this point. People aren’t going to buy more cars on a boom. They’re tired.

So we needed the government to come in, in a different way. I don’t think the markets was going to lead the recovery on its own. But what I did think is we need a long-term strategy, we need a long- term strategy based around investment rather than consumption.

We do need to reconstruct our infrastructure, our roads, our power system. Our water and sanitation system all over the country is broken down. Our rail is falling farther and farther behind what China or Spain or Japan or other countries are doing with high-speed rail.

Our energy system we know is dangerous. It’s dirty. It is leading us to mass dependency on imported oil. And so we need a complete overhaul of the energy system.

It would also be human investment, human capital in more spending on higher education, training, research and development.

ZAKARIA: Now, the argument against that, I assume, is that you would have — you would be allowing, you’d be countenancing a long decline. Or in the short term, that there would be jobs lost, there would be — in other words, by not shoring up the system, you would be accepting high unemployment and slow growth.

SACHS: I think that’s exactly right, that I believed that there was no magic solution. At the beginning I said the unemployment rate could get to 10 percent. Lo and behold, it did. And I did say, and we spoke about it on your show just before the administration came in, that you can’t just blow up the deficit and do everything to try to make a binge and a bubble somehow come out perfectly. We should have taken a deep breath, given help to people that needed it temporarily, but understood that exactly what did happen was bound to happen, but not to break the budget and not to fail in thinking about the longer term.

What’s happened is the stimulus substituted for thinking. The stimulus substituted for planning.

What I really worried about was — and I said it to the White House then — this may be the last thing you do in the macro economy. If you put everything here, what’s going to happen when you really need to get to the energy system, when you really need to get to the climate change? Now that’s –

ZAKARIA: What did they say to you?

SACHS: Well, they said we’ve got to act, we’ve got to act right now, it’s desperate. I don’t think it was so desperate. And I don’t think it was solvable the way they decided to solve it.

ZAKARIA: So, going forward, you wouldn’t do more stimulus? And you are worried about the deficit?

SACHS: I’m absolutely worried about the deficit because all over the world countries that have deficits like we do, 10 percent of GNP, are hitting the wall, facing massive crises. When is that going to happen with us? We don’t know. But it could happen at any time because –

ZAKARIA: And if it does, that’s the part — the downside here is quite dramatic. If suddenly the world stops financing our deficit, you have to raise interest rates up very high.

SACHS: And it’s not a theory because we see it. It’s not a hypothetical.

In the U.K., in Spain, in Portugal, in Greece, in Ireland, they hit the wall. They had to take truly very harsh and tough measures in response to the loss of confidence. And I think we’re, in any event, digging ourselves into a very, very deep hole.

Do we really want to owe trillions and trillions of dollars to China? Is that the best that America can do? I don’t think so. Do we really want to play right on the edge of this massive indebtedness, which is what we’re doing?

I was shocked, frankly, that when the administration came in and saw a trillion-dollar deficit, unprecedented, that they added to it and thought that that would work both politically and economically, rather than saying this is tough, we don’t have a magic solution for the first year or two, but what we do need to do is have a solution for years three through 10 based on real investment and the real need for U.S. competitiveness. That’s what has been missing.

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