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“It’s Hard To Be Optimistic”: Political Ideology Blocking Good Policy, Michael Spence Says

Aaron Task
Editor in Chief
Daily Ticker

These are tough times for Keynesians -- or just about anyone hoping for governments to act boldly to address the globe's myriad financial woes. In the U.S., a political divide has brought the government to a near-standstill yet again, while European policymakers continue to fiddle while the EU burns.

Against that backdrop, "it's hard to be optimistic," says NYU professor and Nobel laureate Michael Spence. "There's huge disagreements. Important policy issues are being held hostage to other things."

Still, Spence believes there's a role for governments to play in combating the downturn, as detailed in a recent blog post:

"Government cannot solve the problem alone, much less make the problem go away overnight. But government can take action that improves productivity, investment returns, and conditions for innovation, thereby increasing the pace and enhancing the long-term results of structural adjustment."

In the short-term, Spence believes infrastructure spending and tax reform can give the economy a boost while worker retraining and improvements to America's education system can help our long-term competitiveness. Along with a plan for long-term fiscal stability (i.e. cutting the deficit) he believes these steps will help the U.S. "rebalance" the economy away from debt-driven consumption to one based on "external demand" (read: more exports and trade.)

Right now it doesn't look like anything approaching Spence's "wish list" is even in the realm of possibility. Still, he believes global policymakers are now "slowly coming around to reality" after having "overestimated the recovery" previously.

If and how they'll respond remains to be seen.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com