Monday, June 27, 2011

How to Manage an Economy

Sweden has suffered much less than most countries in the recession, despite being so tightly tied to the EU trading block. The Post has a feature on five reasons why, of which two are notable:

1) strict bank regulation
2) run a budget surplus in good times

The second strikes me as particularly important. The reason the US is having such a budget crisis now is that we were already running a deficit even in the relatively good years of 2005 and 2006. Had we had sensible budgeting then, we would have had much more room to increase spending or cut taxes to further stimulate the economy now. Because our budget was already out of whack, the recession threw it so far out of whack that people are panicking about the deficit, limiting what we can do about the recession.

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