How do we know when it’s time to start getting prudent?

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As part of my frightening yet potentially lucrative new career as a Person Who Sits/Stands at the Front of the Room and Says Stuff While Other People Sit in Chairs and Listen Semi-Attentively, I’m on a panel tonight at the Barnes & Noble at Broadway and 66th in Manhattan with Bruce Bartlett, Robert Samuelson and some guy I don’t know named James Matthews. The (pretty danged broad) topic is “The Recession, Obama and the Future – where do we go from here?” I’m supposed to come up with an opening statement. So, in the interest of repurposing every last brainwave as blog content, here are the first few thoughts that popped into my head:

1. We go to 2010 from here. Then 2011, I think. After that, maybe 2012.

2. At some point we need to go from policies meant to lessen the impact of this financial crisis and recession to policies meant to lessen the risk of more such crises happening in the near future. Up to now I haven’t had a lot of patience with the argument/critique that, We got into this crisis by borrowing too much money, so how can we get out of it by borrowing more money?!? The federal government’s $1.4 deficit in the just-ended 2009 fiscal year was, as Stan Collender put it a few weeks back, a triumph of fiscal policy. With private borrowing and spending collapsing, the government’s stepping into the breach temporarily made tons of sense. But I get that the deficits can’t go on like this forever, and that the Federal Reserve can’t keep handing virtually free money to the banks forever. I also get that there’s going to be a big political constituency for keeping the fiscal and monetary stimulus going for longer than we really should. Turning off the spigots will be hard. So how do we tell when it’s time to turn prudent? Is it when payrolls stop falling? When interest rates on Treasuries start rising markedly? When the federal debt hits a certain % of GDP? When Ross Perot starts buying TV time again?

3. Was industrial policy really such a terrible idea? In the early 1990s everybody and his brother was talking about the need to do something about the grave competitive threat from Japan and Germany. We needed to do something about the financial-market driven, short-term-oriented focus of corporate America. We needed to do a better job of educating American workers for the technology-driven future. We needed to support the industries of the future to ensure that good jobs continued to be created here. Then the 1990s boom happened and all that fell out of fashion. Now all these same concerns are back. So am wondering? Can government actually add value by subsidizing certain kinds of education and certain industries, and by building out technological infrastructure? I’m pretty sure the answer is yes, but that’s a lot different from saying government will add value.

4. What do we do about the financial sector? Should we be actively trying to keep it from playing the outsized role in the economy that it has over the past couple of decades? And how the heck would we go about doing that in an economically sensible way?

5. Got any more for me?

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