Thursday, August 18, 2005

Bushonomics (A Semi-Sequel to "Why Sweden Works," below)

The year 2001 presented many ingredients for economic disaster. The tech bubble of the late ‘90s burst, terrorists attacked on September 11th, and the unemployment rate rose to over six percent. However, while they threw the country into a recession, none of these ominous factors affected the level of consumer expenditures, which remained strong throughout. This was facilitated by appropriate responses in both monetary and fiscal policy. The response of the Federal Reserve (monetary policy) was to lower interest rates, which fueled low borrowing costs that have continued unabated to date. The Bush Administration (fiscal policy) lowered taxes, putting additional cash into people’s pockets. These responses quickly encouraged consumers and eventually businesses to spend, resulting in a very benign recession.

Therefore, Bush certainly deserves some of the credit. But to say he cured the recession would be to ignore not only the reactive monetary policy that followed its onset but also natural market forces, which have more effect on the economy than any conceivable fiscal measures. For the most part, the business cycle is going to take its turns no matter what the government does, and the historically high labor productivity levels that continued throughout the recession further indicate that the recession caused by Wall Street was largely solved by Wall Street.

In fact, the tax cuts have now become a burden for two main reasons. The first is that while federal revenues have decreased the past few years, expenditures have grown robustly. That you can spend more than you earn only to a certain level is an important rule of thumb that any government must heed, especially during a solid expansion like the one America is currently experiencing. The role of the government in the economy is to be a stabilizer, for it is impossible for it to be a permanent stimulizer.

Making the tax cuts permanent would also be a step back toward laissez-faire policies that would take away the ability of the government to boost the economy in the future. Federal expenditures have increased, but certainly not on the social programs that have defined the progress of the country since the Great Depression. The role of the government is to harness the powerful forces of capitalism while helping its victims, but the Bush Administration has disregarded the latter.

Overall, the tax cuts were useful when they were issued, but measures that help to end recessions aren’t always the same measures that help to fuel expansions, as the Administration must realize. Even for the government, money doesn’t grow on trees, and therefore Bushonomics must be adjusted to fit the economic situation of the country.


At 11:07 PM, Blogger Sam said...

The Eagle has landed.

Welcome aboard, Jack.

At 12:27 AM, Blogger Enlighten said...

From the NYT August 16, 2005
The budget office also said that total revenue was expected to increase 14 percent this year, to $2.1 trillion.

At 9:42 AM, Blogger Eagle said...

That's a fourteen percent increase over last year, when we had the largest budget deficit in history. This can be attributed to supply side economics and the Laffer theory, but continually running budget deficits over $300 million (remember, the Iraq War isn't counted in government expenditures and there will inevitably have to be significant investments in overhauling Social Security and Medicare) isn't prudent for the most powerful government in the world.

At 2:55 PM, Blogger Eureka Dejavu said...

I am an award-winning journalist with a project, Ruminations on America, for which I have called for essays from coast to coast on the current state of the union and true core American values. The response so far has been overwhelming...I would like to invite you and your readers to participate in the project (essays of up to 1000 words must be accompanied by a photograph that conveys a sense of who you are and a brief introduction to your life) or to check it out at Some of the entries so far include the actor John Ventimiglia (of the HBO show the Sopranos), a member of the Veterans for Peace who rode the bus to Crawford with protesting Gold Star Mother Cindy Sheehan and a Catholic nun who wrote a letter from prison on July 4. She is currently serving a term for civil disobedience.


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