Hey, Washington, leave the economy alone

Posted Tuesday, Feb. 05, 2013  comments  Print Reprints
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Is this the year the U.S. economy finally turns the corner? The messages are mixed -- from slower-than-predicted growth in the fourth quarter to higher-than-expected housing starts -- and this seems to mirror the lack of consensus among economists and politicians about what ails our gross domestic product and what might restore it to health.

Is the economy weighed down by a burdensome tax and regulatory structure? Or does it suffer from disinvestment in infrastructure, science and education that could stimulate growth?

Both sides have passionate arguments, but since the stimulus was passed in 2009, all official economic intervention has stemmed from an unelected body, the Federal Reserve. Congress, led by the Republicans, has done nothing but fuel uncertainty.

So where are we? A recent article by the head of research at the normally bearish Roubini Global Economics suggests that things could be getting better, though with the usual disclaimers about uncertainties. I found the article intriguing because it addresses what I was told convincingly five years ago was the central problem facing the U.S. economy: the need to de-leverage massive household and corporate debt.

Attendees of a board meeting at one of the world's largest corporations were told that de-leveraging might take a decade and that, until it was completed, the economy would grow anemically, if at all.

There are signs that households have finally paid down their debt and are spending again and that their largest personal assets, their homes, are increasing in value.

The importance to our overall prospects for more robust economic growth should not be underestimated.

From the Roubini report: "The end of private-sector de-leveraging, and, eventually, credit growth increasing to the level of economic growth, will boost U.S. growth closer to its potential rate of 2.5-3.0 percent. It will allow for slower savings growth, more investment and smaller fiscal deficits."

Wouldn't that be nice?

The big question is what, if anything, the government can do to help. Here's an answer that will be hard for politicians to swallow: Do nothing.

The economy is finally doing what it's supposed to do, heal itself, and the proper course for Washington is to do no harm.

That means no games on the debt ceiling and no stupid plans to radically cut spending and raise taxes in the near term.

Fight about immigration and guns; leave the economy alone.

Carter Eskew is a co-host of The Insiders blog, offering commentary from a Democratic perspective, and was chief strategist for the Gore 2000 presidential campaign.

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