America Needs Stimulus, Not Virtue

What does America need?

INET’s Founding Sponsor George Soros recently published an op-ed in the Financial Times, in which he touches on a couple of issues that INET is interested in. In the op-ed, Soros makes the case that America needs more stimulus, and that the Obama administration’s economic policies have been based almost completely on politics:

“The Obama administration’s insistence on fiscal rectitude is dictated not by financial necessity but by political considerations. The US is not in the position of Europe’s heavily indebted countries, which must pay hefty premiums over the price at which Germany can borrow. Interest rates on US government bonds have been falling and are near record lows, which means that financial markets anticipate deflation, not inflation.”

Soros believes that the administration erred in the way that it handled the banking system bailouts:

“Where the Obama administration went wrong was in how it bailed out the banking system: it helped the banks earn their way out of a hole by purchasing some of their bad assets and supplying them with cheap money. This, too, was guided by political considerations: it would have been more efficient to inject new equity into the banks but the president feared accusations of nationalisation and socialism.”

Soros goes on to note that what is needed is not politically-motivated policy implementation, but further stimulus, which would stabilize the country’s economy:

“I believe there is a strong case for further stimulus. Admittedly, consumption cannot be sustained indefinitely by running up the national debt. The imbalance between consumption and investment must be corrected. But to cut government spending at a time of large-scale unemployment would be to ignore the lessons of history.”

Soros concludes by deriding the way economic policy is being de-railed by political considerations, an issue that INET is very interested in:

“What stands in the way is not economics but misconceptions about budget deficits that are exploited for partisan and ideological purposes.”

To read the entire op-ed, please go here.