Secretary of the Treasury Tim Geithner has spent much of the past year lecturing Europe on how it should get its financial house in order. EU leaders have said that he should turn his attention to his own country’s problems, which include a high deficit and rising national debt. In Europe, Geithner says, austerity should be part of a formula to address the region’s woes. In the U.S., he said very recently, austerity is the enemy of recovery. He has his reasons, but they could be influenced by the fact that he will not hold his current position much longer.
In a speech at the Economic Club of New York, Geithner remarked that, “We can’t cut our way to growth. Severe austerity now would be very damaging.”
His philosophy, which also has been the president’s, is that the federal government can make relatively small but judicious cuts in large expense pools like defense costs. In the meantime, the economy requires tens of billions of dollars in infrastructure and education stimulus if it is to take off. And, with that take off, gross domestic product will rise very quickly and a renewed tax base will help close the deficit and fund expensive programs, which include Social Security and Medicare.
The debate is an old one. Stimulus now will have to produce results that allow a rise in economic activity to chase down deficits from behind. Austerity now will cripple economic growth in the future and cause higher deficits as tax revenue retreats. Geithner offers very little middle ground.
It might be said that Geithner’s plans are selfless. Even if stimulus packages were voted into law soon, their effects would not be felt for months, or perhaps years. That would not help the president to get reelected. It would help the next president, whether it is the current one or someone else. On the other hand, it could ruin the economy again and make the four-year term that begins next year a period of unemployment and deficit hell.
Geithner said he will not be Treasury Secretary in the next term. So, he may be doing the president a favor by promoting the president’s program. Or, he may be voicing his actual belief as an expert on the economy. Either way, he will not be around to deal with the consequences.
Douglas A. McIntyre
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