by Ezra Klein
Let’s say I gave you three pieces of information about the U.S. economy. First, we have a terrible unemployment problem that’s not solving itself anytime soon. Second, we’re running big deficits that we expect will become unsustainable in the coming years, though there’s no evidence that the market is even mildly concerned about them right now. Third, we can borrow for next to nothing because the world sees us as a rare safe harbor during a time of global economic turmoil. What sort of economic policy would you design?
It’s not a particularly hard question. First, you’d want policies to create jobs, like a big tax credit for businesses that hire new workers and a large investment in rebuilding infrastructure. Then, you’d want a plan that brought both deficits and debt-to-GDP down in the coming years.
Typically, this is where you’d run into trouble: The policies to create jobs cost money, making it harder to reduce the deficit. The policies to reduce the deficit require you to cut spending and raise taxes, which tend to destroy jobs.
But, happily, America’s lucky situation means you don’t have to choose. We can borrow for nearly nothing right now — actually, less than nothing after accounting for inflation — and so the obvious answer to your dilemma is to borrow now to create jobs while putting in place a significant deficit-reduction plan that would begin once unemployment fell below, say, seven percent…