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Jim Hoge has been the editor of Foreign Affairs magazine since 1992.  He holds the Peter G. Peterson Chair at the Council on Foreign Relations, and is a director of[…]

We have not come out of the recession enough to stop spending money says the Foreign Affairs editor.

Question: Where is the world's next major financial crisis most likely to pop up?

Jim Hoge:  The financial system of market based economics invariably has periods of recession, periods of when people have overbought, undersold or whatever and that is going to happen again.  There is no question, but what just happened the last two years is much, much bigger than most market based slowdowns or recessions and it was based on some very big we might call fault line problems that have to be dealt with.  What I’m concerned…  And I think we will by the way, but there are two things to keep in mind.  This was so severe that our economic base that we’re now going to have to build back from has contracted dramatically.  It’s nowhere near as large as it was and we won’t get back to an economic base that big for at least 10 or 15 years.  Number two, I worry more than anything else that we’re about to make a huge strategic mistake economically and that is to think that we can turn around on a dime and through harsh taxes and harsh spending cuts reduce our deficits and not bring on a big second recession.  Timing is everything.  We are not ready to stop stimulus.  In fact, we need another stimulus program.  We are not ready to give up on spending money, on infrastructure problems that are really an investment, roads which are deteriorating dramatically, rails which are way behind other big countries, on education, so I hear the voices from sort of the conservative wing in congress saying it’s time right now to start slashing our budgets, not to raise taxes, but to cut spending very dramatically on everything from education to roads and bridges and I think that is a ticket for disaster.  Now I’m not a spendthrift who says let’s spend the kind of money we’re spending now forever, but we just simply have not come out of the recession enough.  We have not built and sustained economic growth again enough to begin that and when we do begin it we should be doing it gradually.  We shouldn’t try to solve the deficit problem in one fell swoop.  It’s going to take 10 years to do it and we can afford that as long as we get on the right track, but we’re not going to get on the right track if we don’t first pay attention to what needs to be done to regenerate growth in the economy, a solid growth based on real productivity and real innovation and I just hope that while he is in office the Obama Administration has the grit to stick to the job of rebuilding the economy and our capabilities, our productivity before trying to resolve to a great extent, the deficit problem.  That is later.  That is not for now. 

Recorded May 28, 2010
Interviewed by Jessica Liebman