Monday, September 29, 2008

Summers praises the TARP

Larry Summers argues that the TARP is not only good economics, it's great economics.

First, note that there is a major difference between a $700 billion program to support the financial sector and $700 billion in new outlays.
[Second, there will be no crowding out because the TARP will be finance with government debt. Come again?]
Third, since Keynes we have recognized that it is appropriate to allow government deficits to rise as the economy turns down if there is also a commitment to reduce deficits in good times. Fourth, it must be emphasized that nothing in the short-run case for fiscal stimulus vitiates the argument that action is necessary to ensure the United States is financially viable in the long run. We still must address issues of entitlements and fiscal sustainability.
From this perspective the worst possible actions would be steps that have relatively modest budget impacts in the short run but that cut taxes or increase spending by growing amounts over time. Examples would include new entitlement programs or exploding tax measures. The best measures would be short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget, such as investments in health-care restructuring or steps to enable states and localities to accelerate, or at least not slow, their investments.

No comments: