WSJ: Policy makers have to make a hard choice, between addressing deficits and trying to support growth and jobs.
REINHART: This economy is still frail. One thing that scared me in looking at the Japanese experience was that they declared victory too soon and withdrew stimulus very soon, and wound up with a bigger debt and bigger deficits as a consequence because things rolled over and died and you wound up with the worst outcome. So when I talk about fiscal discipline, it is not that we go out and implement belt tightening tomorrow. But we plan to, and develop a plan that puts the deficit and debt on a sustainable path. That is necessary today. I would attach a higher weight to getting the recovery going first. You stay the course on the fiscal side but you come up with a plan that puts fiscal footing on a sustainable path. That is easy for me to say, but hell for anybody to implement. You’ll have politicians from every angle, whose time horizon not what happens in five years, but what happens five weeks from now.
Many economists take a much calmer view of budget deficits than anything you’ll see on TV. ... So why the sudden ubiquity of deficit scare stories? It isn’t being driven by any actual news. It has been obvious for at least a year that the U.S. government would face an extended period of large deficits, and projections of those deficits haven’t changed much since last summer. Yet the drumbeat of dire fiscal warnings has grown vastly louder.
To me — and I’m not alone in this — the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.
The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.
But then there's this final word from Reinhart:
WSJ: You and Ken Rogoff have been working together for nine years on these issues. What are the areas where you disagree most?
REINHART: I think Ken may have a little more faith in markets than I do. Unfortunately, I don’t have faith in the government either.