Meltzer Nails It
Economist Allan Meltzer, in an interview on Bloomberg TV today, nailed the bottom line for working out of the financial crisis and economic recession. His argument was essentially that:
(1) debt service requires income
(2) given the state of global trade balances, income requires rising exports
(3) exports require domestic production
(4) domestic production is best stimulated through tax measures
One example he suggested was to allow immediate tax expensing of domestic capital expenditures, and making that a permanent policy (this was a temporary measure earlier this decade, and had positive effects). There are many other possibilities available to policy makers that would have significantly positive impacts.
The recovery recipe, as Meltzer's outline shows, is quite simple. Moreover, it's largely inescapable; it's what needs to be done. When it happens depends on how much time (and how many resources) are diverted to the so-called 'conventional' tools of fiscal policy, like infrastructure investment. Infrastructure is important, but it's most easily financed when the private sector economy is healthy and robust.
