From PROJECT-SYNDICATE: by George Soros
… [President] Obama is under political pressure. The US public is deeply troubled by the accumulation of public debt, and the Republican opposition has been extremely successful in blaming the Crash of 2008 – and the subsequent recession and high unemployment – on government ineptitude, as well as in claiming that the stimulus package was largely wasted…
But, without a bailout, the financial system would have remained paralyzed, making the subsequent recession much deeper and longer. True, the US stimulus package was largely wasted, but that was because most of it went to sustaining consumption rather than to correcting the underlying imbalances…
The right policy is to reduce imbalances as quickly as possible while minimizing the increase in the debt burden. This can be done in several ways, but the Obama administration’s stated goal – halving the budget deficit by 2013 while the economy is operating far below capacity – is not one of them. Investing in infrastructure and education makes more sense. So does engineering a moderate rate of inflation by depreciating the dollar against the renminbi.
What stands in the way of this agenda is not economics, but misconceptions about budget deficits that are being exploited for partisan and ideological purposes…
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