The IMF needs to take a hike.
David L.
A liberal is someone who feels a
great debt to his fellow man, which debt he proposes to pay off with
your money. -- G. Gordon
Liddy
Article Title: "Wrong
Again " |
Author: Section: Issues &
Insights |
Date: 1/9/2004 |
|
Budget: The IMF, in a new report, says the U.S.
deficit poses a threat to the world economy. Funny, but we think the one
in Europe deserves a lot more attention.
This year, forecasts
put the U.S. deficit at just under $500 billion, or 4.5% of gross
domestic product. That, according to the IMF, is more than just a
problem for U.S. budget makers; it's a problem for the world economy,
threatening the nascent global rebound with higher interest rates and a
plunging dollar.
The IMF has some advice: Sure, you should
control spending, but why not get rid of President Bush's tax
cuts while you're at it? That's the only way to pare those dangerous
deficits.
We sympathize with the IMF. Doling out unwanted advice
to countries around the world isn't easy. Especially when it's so often
wrong.
The U.S. would make an enormous error if it rescinded
Bush's tax cuts. They're the very reason why our economy has
finally begun growing at such a rapid clip.
The 5%-plus GDP
growth many expect this year and next will cut into the deficit - just
as it did in the late 1990s, when a soaring economy, coupled with
spending restraint by a GOP-led Congress, created surpluses.
As
such, we agree with Treasury Secretary John Snow, who said Wednesday it
would be a "huge mistake" to undo Bush's tax cuts. And we think
Snow's prediction the U.S. will cut its deficit from 4.5% of GDP this
year to 2% in five years is too glum. The budget can be balanced by
decade's end if spending is controlled.
That's not to say
deficits don't matter. In the long run, they do. But the U.S. has shown
it can grow out of them. The same can't be said for Europe. That's where
the real problem is.
As the chart shows, deficits for the two
largest economies in Europe, France and Germany, are above 3% of GDP,
the limit placed by the European Union on its members. And they're
rising.
Why is this a bigger problem than the U.S.' deficit?
Because unlike the U.S., Europe is barely growing. And its budget
deficits are structural, the result of aging populations, too-high
taxes, excessive regulation and a creaking welfare state whose costs are
soaring.
These problems won't go away with a turn in the
business cycle. Nor will they suddenly get better if the U.S. decides to
raise its taxes to Europe's punitive levels. Unfortunately, a
perpetually stagnant Europe threatens to slow down the entire world
economy.
So for now, we'll just thank the IMF for its advice and
go on our way. We'll bet in five years the U.S. budget gap will be a lot
smaller than today. We're pretty sure the same won't be true for
Europe. |
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