Geithner Gives Advice on Global Economy as U.S. Flounders

While Treasury Secretary Tim Geithner gave detailed advice to European nations about how to avoid recession, the U.S. struggles against a contraction of its own. In an editorial in the Financial Times he wrote, “But the biggest constraints on action in the major developed economies now have less to do with those economic realities and more to do with political paralysis, misplaced fears about inflation and moral hazard, and unwarranted disaffection with the efficacy of the traditional fiscal tools of tax cuts and investment to encourage growth.”

In other words, Geithner believes European nations should put aside partisan interests in the name of creating programs to help job growth through a combination of stimulus and lower taxes. The editorial appeared at almost the same moment as President Obama proposed a $447 billion stimulus bill to Congress — the American Jobs Act.

The only substantial difference between situations in Europe and the U.S. is that the disagreements about stimulus and austerity exist both within the eurozone nations and between them. Germany may be the best example. It has resisted some stimulus and bailout programs for the weaker economies in the region as internal politics put pressure on Angela Merkel to make German money work for the good fortune of Germans only. She faces elections that could put her out of office if she spends too much to help Greece, Portugal and perhaps Italy.

The U.S. problems of political and economic debate do not extend beyond American borders. The only goal of U.S. politicians is to bail out their own slice of America and fix the largest economy in the world. So far, efforts here have been no more successful than those in the EU. Geithner is right about the cause — political paralysis — but his advice has been nearly useless to America as Republicans and Democrats bicker about what is best to prevent another recession.

Political paralysis may lessen as the economic situation grows worse in the U.S., UK and EU. It was unthinkable a year ago to suggest than any nation in the West should spend money to improve economic conditions. Governments decided that the only way to balance national budgets was through austerity measures and higher taxes. But the very real chance of a double dip recession has caused politicians in many countries to revisit whether they need to invest in growth programs and hope that austerity can be effective even if they put it off a few years.

Geithner’s advice to Europe is really a disguised comment on how he thinks the U.S. should solve its economic problems. The reason his proposed suggestions may work is that politicians in developed countries have become nearly as concerned about another period of GDP contraction as by who wins the next election.

Douglas A. McIntyre