Not All Fiscal Policy Is Created Equal

I have often addressed the issue of monetary versus fiscal policy, and whether one of them in particular is currently more optimal to adjust based upon our present economic backdrop. My tax proposal is a general fiscal policy recommendation, though it also serves as a fiscal stimulus because of the relative changes that would ensue during such reform.

In our current situation where the employment and growth issues appear to be relatively more long-term and structural, rather than short-term and cyclical, in nature, fiscal stimulus can often be more effective than monetary stimulus.

It appears Pimco’s Bill Gross agrees with the sentiment that the current focus primarily on monetary stimulus, per his thought-provoking monthly missive for June, is not working as well as one might hope in stimulating the economy overall.

More important, per his comments on this CNBC interview on Monday, Gross not only highlights the current relative importance of fiscal over monetary stimulus, but on focusing upon investment over consumption within the relative types of fiscal policy adjustments from which fiscal policymakers (i.e. Congress) might choose.

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I echo that sentiment in the goals section of my tax reform proposal, as my recommendation for implementing it is in hopes of finding an opportunity to substitute in a more efficient longer-term fiscal policy (which also happens to serve as a shorter-term fiscal stimulus), partly more efficient because of promoting investment over consumption relative to our current system.

Here is one related snippet from the CNBC-provided transcript highlighting Gross’ thoughts on fiscal policy from yesterday’s interview on Closing Bell with Maria Bartiromo.

Bartiromo: “[I]f bernanke weren’t there, we wouldn’t have any stimulus, right? where’s the stimulus coming from the fiscal side of things and would you like to see that replacing some of this bond buying?”

Gross: “[W]ell, we’ve always been an advocate of fiscal stimulus to the extent that it was appropriately directed. to our way of thinking, up until this point, it’s been directed to consumption and consumption has it day and then it doesn’t have its day.

[I]f the stimulus was directed [to]wards investment toward the future in whatever area that you want to claim, then it has more longevity and more staying power. so our proposition has been to stimulate investment as opposed to putting it into consumption.”

As I’ve mentioned previously, the overall adjustments our economy may want to consider can appear quite detailed when evaluating all of the options, but it is far from impossible to implement.

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I am confident we can and will make the policy adjustments necessary to allow recent asset price gains to be maintained, while also supporting an underlying economy that enhances those assets in order to justify and expand its values.

Jonathan Prober has specialized his academic and practical endeavors on the five pillars of professional services: finance, economics, financial accounting, taxation, and the law. His professional experience includes dealing with business and legal issues, including wealth management, financial valuation, and corporate strategy. For more, visit Prober’s Playbook or follow Jonathan on Twitter at @jonathanprober.

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