There is a sound method to combine the analytical perspectives of macroeconomic stimulus, resource allocation, income distribution and generational equity and efficiency. It’s called a medium-term fiscal framework, which systematically presents the various tradeoffs of taxation and spending backed up by formal budget projections for at least five to 10 years, and in some budgetary processes up to 50 years or more. Norway, for example, takes such a long view in the management of its hydrocarbon wealth on behalf of current and especially future generations.
Higher deficits to increase spending on urgently needed public goods—such as infrastructure—and on transfers to states and cities to help them address the pressing needs of the poor and the unemployed (especially regarding health care, nutrition, education, and housing), can combine desirable macroeconomic stimulus, efficient resource allocation and urgently needed redistribution. Over time, however, we will almost surely have to raise taxes to close the deficits and to cover the long-term costs of government. Most important, however, it’s time to start thinking systematically about the long-term role of government in the U.S. economy today and how to pay for it in the future.
This article was originally published with the title Needed: A Fiscal Framework.
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18 Comments
Add CommentDr. Sachs makes a clear and correct point, but overlooks the Admin's real priority of socializing the government. Remember, it's politicians in charge, NOT economists. Unfortunately.
Reply | Report Abuse | Link to thisWhy cut taxes? When you pay tax, you get something back later for your money in terms of services, welfare or pensions. Tax is just a mutual form of savings. The question we should be asking is why get credit? All the money you pay as interest is lost forever. And the interest you pay is always packaged to make you think you are paying far less than is actually the case.
Reply | Report Abuse | Link to thisThe meaning of the word 'Economy' is savings. Tax is savings....
Really? That statement is so far from reality that it's impossible to respond to it in a single post. That fact that you think that way is indicative of the failed "gimme" mentality. When the taxes are all gone, and you have no one to hold accountable for the spending of YOUR savings, you will cry over the injustice and beg for "freedom," and will find no forgiveness for your stupidity.
Reply | Report Abuse | Link to thisEco-steve's comment is egregiously incorrect. Taxes are certainly not savings. Especially when people in different income levels are taxed differently. I just...that is such a wild statement I can't come up with a short enough response. Just do some research on how the government works.... Hopefully cybernetic enhancements will come soon....
Reply | Report Abuse | Link to thisI paid 45% of my wages in tax in Britain when I was unmarried. In France we pay around 10 to 20% of value added tax on all purchases. So even beggars pay a far larger proportion of their income than the rich. Yet I am proud to be a taxpayer in a system that cares for its needy. Just look at the terrible debt burden that americans have taken on since state welfare was abolished. You have sold yourselves into slavery!
Reply | Report Abuse | Link to thisThose who control wealth believe they are gods.
Reply | Report Abuse | Link to thisWe need to educate our children in late primary school informing them what money is, where it comes from, why certain private institutions are allowed to create it, what regulations apply to these private institutions and what will be done if they break the laws governing creating money.
Money is not as complicated as it is made out to be. Rules regarding its creation and distribution are deliberately withheld from the people. Exorbitant interest is charged on money created by banks on their computers.
If conditions are static, money issued as debt cannot be repaid. The total amount of money is equal to the total amount of debt, but the money that has to be repaid is debt plus interest. Hence the need for perpetual growth or put simply perpetual increase of debt. Debt increase the money supply, The goods and services are static by comparison, hence we have inflation.
Your grandfather lived nicely on 100 units per month, you need 5000 units to live a similar life.
Taxes are good they dampen the catastrophic events that occur in life like a medical emergency, loss of a guardian, or any event that destroys a persons ability to provide for his/her necessities. Sadly taxes are seen by the powerful as another way to grab wealth and power. We do not have a fair and just society as a result. The welfare state may be corrupted by sneaky individuals but on the whole the populations in welfare states have a better life than those in any other system.
The day you die all your wealth is worthless to you.
"Your grandfather lived nicely on 100 units per month, you need 5000 units to live a similar life." Compared to my grandfather we live like gods. He had no hot-cold running water. We do things he would have thought of as god-like. See something interresting? Image it and instantaniously inform your friends. Remember questions? They used to be things we would agonize with over months and call librarians about. Now they are things that are immediately converted to answers on ever improving search. We have things kings of the world did not have two hundred years ago, like the ability to travel faster than 15 mph. Those improvements where not mandated by the Inovation Czar. The painfull, unfair, and indisputable truth is that cell phone development was funded by rich people.
Reply | Report Abuse | Link to thisBut the underlying problem here is not one just of money but of what money represents: value. With your once-every-four-year value decision you have taken away, or taxed, your hundred times a day value decision slips, the green ones. Now your values and your childrens values will be assessed by a central valueation committy. You have abdicated your responsibility to your children. You have spent their valuations slips. Now they will toil through their days for only their government alloted food and water at their eco-friendly government housing facility not for themselves, not even for humanity, but for the planet. I can't wait 'till we start doing things for the galaxy. Then we will be really responsible.
"Egotist: Someone who cares more about himself than he does about me." -- Ambrose Bierce
A fantastic program on PBS, "Commanding Heights", is viewable online and eerily presages much of our current philosophical schizm in this value crisis.
What happened to the original version of this article like the one in print?
Jeffrey Sachs' continuing socialist views continue in his latest article titled: "Needed: A Fiscal Framework". He continues to believe that big government with much higher taxes is the answer to everything. He does not understand that no country can afford to provide infinite medical care for everyone and that the expansion of entitlements he proposes will bankrupt the country. He proposes that we have to tax, tax, and tax ourselves to adequately pay for the government we need and want. Well, Mr. Sachs, I don't want the kind of government you want. I want a Federal government that tends to its constitutional responsibilities and that is primarily protection of our country and foreign affairs. I want local governments to make the hard decisions as to where our tax money should be spent. The idea that all money should flow to the Federal government and then be doled out to the local governments based on what some politician hiding in Washington wants is repugnant. If you read the Obama proposed 2010 budget you would be appalled at the extent this president believes the Federal government should be involved in our every day lives. Keep in mind as you propose more government in our lives that the financial mess we are in was primarily caused by the government forcing ridiculous requirements on banks to loan money to people who were not qualified. Keep in mind that our government has not even been able to protect our borders and as a consequence there are over ten million people in this country illegally. And, Mr. Sachs, you want more government!!??!!
Reply | Report Abuse | Link to thisTechnology may put the greatest gadgets in your hand, make communications instantaneous and give you an extra long life, but are you as happy and content as your grandfather or do you want more?
Reply | Report Abuse | Link to thisOur planet has sustained life for millions of years. Species depended on each other species for food and waste cleanup. Our actions have resulted in the extinction of thousands of species in a very short period. The extinction rate exceeds that of the fifth extinction. We are in the sixth extinction.
Our perpetual need for growth (a consequence of the monitory system) demands we increase our population and production.
Money comes from two sources. The government issues money called fiat money. Banks are the second source. This is debt money. A loan applicant provides collateral (house or similar asset) and agrees to repay the loan with interest. An asset is generates on the books and money to that value is available to fund the loan. Most money is debt money. This creates a problem, the total money available is debt + fiat money the total repayable is debt + interest. Insufficient money exists to pay the debt, hence the need for growth (more borrowing against assets). When debt is being written off and asset values lowered banks need money to remain solvent. Our present predicament. This is all financial stuff but it does impact on the survival of our species.
Our increasing population levels are balanced by reducing populations of other species. The reduced biodiversity that results is bringing on our extinction. Increased demand for food introduces mass production of food. Land is cleared; fertilisers are used to enhance output. Initially all seems to be well, then come the consequences. Loss of biodiversity on farmlands reduces fertility. Fertilisers leach into the water table, salinity and degradation of farmlands result. Plants farmers consider weeds are poisoned; they are essential to maintain the fertility of the land. Our agricultural experts have ruined farmlands and cleared 25% of the global vegetative cover. 25% less vegetation means 25% less photosynthesis, means 25% less food for all. The suns energy not used for photosynthesis heats up our planet.
All your gadgets, cell phones and king like conveniences will not help you survive on a planet without biodiversity. Evolution is the driving force behind everything happening on our planet. Evolution favours intelligent life forms, but intelligent life forms do not seem to understand the need to maintain biodiversity. Life will return after the sixth extinction.
I agree with ccubed, The consequences of a turn to more government are rearing it's ugly head. Barbies are being outlawed in West Virginia. Bikini waxing is being outlawed in New Jersey. Limos are being outlawed in CA. More government means more laws and people are turning to laws to solve their problems. Do more laws really make better citizens?
Reply | Report Abuse | Link to thisscientific earthling it is amusing watching you writhe in the misanthropic pain of your own making. How many mental convolutions must you go through to justify the end of humanity? Don't you know that eco-scientists and intellectuals will perish in that great end too? Or will they live on in their ivory towers with their barren wives aborting their test tube babies so they don't have such a terrible fate as to live in this unfair world?
Nice backgrounder on money. Was that copied from wikipedia? I don't see what it has to do with the topic at hand either.
Back to the topic: So cell phones are bad? Remember they are a device whose primary purpose is to connect people to people. To me that makes it a good device. But I like people.
Cell phones are a good example of trickle-down development. Cell phones were not made for the masses. They were made for rich people. Just like airplanes and automobiles. (I know you will say both of those have been nothing but bad for the environment, but I would assert that if it were up to your approval the sludge, slime and noxious gasses that made up the early environment would never have gotten off the ground. I think what you really hate is life itself. :-( )
Professor Sachs focuses exclusively on Federal taxes. Our total tax burden exceeds 50% of the meager earnings upon which we subsist from what remains of our savings, even though we are only in the 15% federal tax bracket. How much does he want to take? I submit that we are already past the chaotic region of the Laffer curve and that further increases in taxes will only result in reduced revenues. Harold Wilson tried marginal rates over 100% and succeeded only in creating the brain drain. Carter's reward was massive inflation.
Reply | Report Abuse | Link to thisUS corporate taxes are already the highest in the developed world. Personal taxes are already excessive. Since the '30s the US has spent billions in "alleviating poverty" with no discernible effect. If this had been spent on infrastructure instead, many more would be employed, the tax base would be larger, and we wouldn't be in the pickle we are today and our bridges wouldn't be falling down.
Professor Sachs, please come down from your ivory tower and look at things from the plight of the people who actually work (and save) and are already paying usurious taxes of many kinds. The time has come to jettison the worn thinking of the ;60s so beloved by our current administration, and develop 21'st century solutions for the 21'st century.
The following assertion seems particularly bold:
Reply | Report Abuse | Link to this"As a result, the U.S. has the highest poverty rates, greatest income inequality, highest per capita prison population and worst health conditions of all high-income countries. "
Could someone please pont to supporting data?
I am continuously amazed that some people, even educated people, would advocate that the allocation of capital resources be put in the hands of politicians (of either or all
Reply | Report Abuse | Link to thisparties or countries). Does no one read history anymore?
What is the source of the statement that "America ranks 22nd of 23 high income countries in public social outlays". Is it the O.E.C.D. ? I would like to check it out.
Reply | Report Abuse | Link to thisI agree that JS's article is condoning more socialism. I wonder why it was published in Scientific America? Where are his footnotes and references??
Reply | Report Abuse | Link to thisI think the most important subject for use of this money is in trying to understand in a scientific way how our money and our macroeconomy actually works! Mostly macroeconomics is not regarded as an exact science and the amout of contravercy about it suggests that the situation has yet to be properly resolved. As a researcher on this matter it soon becomes clear that one needs to build a model of the system in order to understand it and its ability to function. So the problem then becomes which model.
Reply | Report Abuse | Link to thisMy research is centered in firstly choosing a model that satisfies the "Einstein Criterion" which rather like Ockam's Razor calls for as much simplicity as possible provided it is not over-simplified. By looking at the situation from sufficiently great a distance, many of the less important details can be avoided. The model I choose is not based on individuals in the society but rather on how blocks of them function, in all of the somewhat limited possible ways. Thus the personal and individual workings are avoided in the same manner as the gas laws, which are not directly concerned with separate molecular collisions.
The irrefutable logic of taking this approach and the relatively simple model that follows is a more scientific and reasonable way of providing answers to what should be done to get back in the technical road leading toward national progress.
People don't NEED governments because all of their their needs CAN be taken care of by social groups and private organizations, but people HAVE LIVED under governments, with more or less power, from the beginning of recorded history.
Reply | Report Abuse | Link to thisThe powerful one percent have always needed an efficient way to control the bottom 99% who always want to take their stuff and never want to do as much work as the powerful want them to do. Government is their method of exerting force, through police forces and armies and from the time of the Pharaohs and robber barons to the presenet.
And religion is their means of justifying themselves. But that's another story.
America is the least socialist (industrialized) country in the world only because it is the youngest country with a very large amount of fertile land and with rich natural resources (for the time being.)
Ordinary people, without power and money, want freedom and they want to be left alone by the government (usually the top 1% or so of people.)
This top 1% will bring more and more socialism (control over the masses) to the United States with pretty slogans about helping them to better lives and the bottom 99% will kick and scream all the way ... as most of the comments here demonstrate.
People like to be left to themselves to solve their own problems, including providing for their own education by forming small non-government associations such as day care centers and home schooling projects. Very few children would attend public schools if the state did not make public school attendance a law. And people prefer to protect themselves from crime by forming vigilante groups and carrying guns but the government does not allow either.
But the power of the wealthy class rests on military power and the power of the military rests on the superiority of American technology. Technology comes from university research which is funded by the government. That is why Obama wants to fund scientific and technical research at universities.
Again, it isn't the socialist professors who will bring socialism, it's their mostly invisible bosses, the super rich unless America can defy the laws of history and actually succeed in building a city on a hill as old John Winthrop dreamed of doing.
Unbelievable the number of John Galt wannabees found on comment boards such as this. Has Ayn Rand become suddenly cool? Obama didn't suddenly invent the magical formula that sold your children into slavery. I'm afraid it happened while you weren't paying attention at an ever accelerating pace over the last 3 decades. Living better that your grandparents thanks to all your gadgets, give me a break. We've lost the ability to not only retain information but to analyze situations and come up with rational solutions. Good luck on the wild ride we'll be going down over the next decade. http://www.theendisalwaysnear.blogspot.com/
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