With talk of a double-dip recession beginning to bubble, Bill Galston has a smart (as always) and appropriately humble piece about our current, ridiculously complicated economic dilemma. His conclusion seems right to me:
[A]ny additional stimulus should be linked explicitly to fiscal restraint down the road.
The historic fear that a truncated Keynesian reaction to hard times–as FDR did in 1936 and the Japanese more recently–will quash a recovery argues for more stimulus now. But given our structural deficit, that stimulus has to be accompanied by real action taken on the traditional budgetary bloats, the Pentagon budget and entitlements. That is famously difficult to do. There also needs to be a serious discussion of new taxation, perhaps a VAT, or national sales tax, with exemptions for the necessities of life like food and clothing (up to a certain dollar limit)–which is even harder. It would be nice if we could have a reasonable national conversation about this, but I’m not holding my breath.