A Different Perspective On Stimulus From The ECB

The European Central Bank has come under fire for being much too slow to move against the economic crisis. Maybe they’re on the right track.

At a speech today in Brussells, Jean-Claude Trichet warned against laying the seeds for the economic crisis via the solutions imposed on this one. Specifically, Mr. Trichet suggested that not enough thought has gone into the outcome that nations want to see from the results of their fiscal actions. His implicit criticism is that they are merely trying to restore the status quo of high debt and consumption levels. He also suggested that more thoughts need to be given to an exit strategy from the exceptional measures now being undertaken.

Given the deepening economic crisis in Europe, Mr. Trichet may be over-indulging in forward thinking. Sometimes ready, fire, aim is the correct approach and now may be one of those times. If the building is burning down around you then worrying about the color of the paint for the new walls is a little self-defeating. Yet I find myself, inwardly at least, applauding his remarks.

It seems pretty clear that the fiscal stimulus plan that the U.S. just adopted contains no forward thinking at all. The goal is to stimulate demand and, if some of its critics are correct, there is no intention for there to be an exit policy. It represents a permanent expansion of government spending to be financed by who knows what means. Resumption of consumption at some level is the desired outcome.    

So while you may accuse Mr. Trichet of fiddling while Rome burns, he has done us a favor by focusing on the lack of thought that went into our own plan. Here’s hoping that it might induce some thought along those lines at some time among our leaders.

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