July 01, 2003

Historical Revisionism

John F. Irons is really annoyed that George W. Bush is trying to backdate the start of the recession to 2000. Of course, the real thing to get annoyed about is that the Bush Administration has done so very, very little to fight the recession:

This isn't to say that Bush somehow caused the initial recession (although it certainly didn't help that VP Cheney was running around in the country in late 2000 and early 2001 telling everyone how the economy was in bad shape.)... The important question is not whose fault is the recession, but rather what has been the response of the administration to the economic situation. We have seen 3 major tax cuts... each of which were sold as economic and job stimulus, but which in reality had very little to do with good counter-cyclical fiscal policy, or with the current economic problems. The result? Unemployment continued to increase and is up to 6.1%, and there have been 2.5 million jobs lost since March 2001...

As I've said before, the failure of the Bush Administration to take any significant steps to boost aggregate demand over the past two years is remarkable and strange. The most they've done is to lie and claim that their tax cuts are effective recession-fighting tools. But even if it is the case that there is next to nobody in the White House who cares about the substance of domestic policy, there are lots of people in the White House who should be scared at the idea that there will be millions fewer Americans at work when the New Hampshire primary comes around in 2004 than when the New Hampshire primary came around in 2000.

I don't understand it at any level--substantive, technocratic, or political.


ArgMax Economics Weblog: Revising History: Posted by John Irons at July 01, 2003 01:09 PM | It seems that President Bush is running around claiming that he "inherited an economy in recession." (See below.)

Just to be clear, the NBER declared the beginning of the recession to be in March 2001, AFTER the current administration took charge.

This isn't to say that Bush somehow caused the initial recession (although it certainly didn't help that VP Cheney was running around in the country in late 2000 and early 2001 telling everyone how the economy was in bad shape.)

It is also unlikely that the recession was caused by any Clinton policy - the recession was largely a result of decreases in business investment - and the federal government simply didn't do anything in the late 1990s that would have had a significant impact on the short-run macroeconomic situation.

The important question is not whose fault is the recession, but rather what has been the response of the administration to the economic situation. We have seen 3 major tax cuts - one per year - totaling around $1.75 trillion over ten years (and this is a gross underestimate since the cost assumes that many of the provisions are allowed to sunset) each of which were sold as economic and job stimulus, but which in reality had very little to do with good counter-cyclical fiscal policy, or with the current economic problems.

The result? Unemployment continued to increase and is up to 6.1%, and there have been 2.5 million jobs lost since March 2001. As a result of the revenue reductions from the tax cuts and the weak economy, the federal budget has gone from a record surplus to a record $400 billion deficit.

We are continually told that the Republican Party is a supporter of personal responsibility. The administration should not be playing the blame game when it comes to the economy, and should take responsibility, at the very least, for the ineffectual policy response and the current dismal budget situation.

The original NBER announcement
The latest update

As 2004 Nears, Bush Pins Slump on Clinton (washingtonpost.com) | With the start of his reelection campaign in the past two weeks, President Bush has revived his pastime of blaming his predecessor, Bill Clinton, for the economic recession.

"Two-and-a-half years ago, we inherited an economy in recession," he told donors at a Bush-Cheney '04 reception yesterday in Miami. He has raised the same accusation in fundraising appearances since mid-June in Washington, Georgia, New York, Los Angeles and San Francisco.

It's a good applause line for a crowd of red-meat political supporters. The trouble is it's a case of what the president has called, in another context, revisionist history. The recession officially began in March of 2001 -- two months after Bush was sworn in -- according to the universally acknowledged arbiter of such things, the National Bureau of Economic Research. And the president, at other times, has said so himself.

The bad news came on Nov. 26, 2001. The NBER, led by an informal economic adviser to Bush, Martin Feldstein, pronounced that economic activity peaked in March 2001, "a determination that the expansion that began in March 1991 ended in March 2001 and a recession began."

At the time, Bush accepted the verdict with perfect accuracy. "This week, the official announcement came that our economy has been in recession since March," he said in his radio address the next weekend. "And unfortunately, to a lot of Americans, that news comes as no surprise. Many have lost jobs or seen their hours cut. Many have seen friends or family laid off. The long economic expansion that started 10 years ago, in 1991, began to slow last year. Many economists warned me when I took office that a recession was beginning, so we took quick action."

Until the NBER's official pronouncement, Bush had avoided the "R" word. He spoke earlier in 2001 of an "economic slowdown" as administration officials noted, correctly, that the pace of economic growth began to slow (but not contract) in 2000, under Clinton's watch. "In terms of how you call it, what the numbers look like, we've got statisticians who will be crunching the numbers and let us know exactly where we stand," Bush said in October 2001. "But we don't need numbers to tell us people are hurting."

...

Feldstein's NBER, which earlier said it gives "relatively little weight" to the quarterly growth figures from Commerce, is not joining in the revision. Two weeks ago, it issued an updated report sticking by its assessment that the recession began in March 2001.

Posted by DeLong at July 1, 2003 12:51 PM | TrackBack

Comments


Just for the record - it's John S. Irons - S. as in Steven.

-John

Posted by: John S. Irons on July 1, 2003 03:00 PM

Brad, for some reason the rest of the blog below this post is in block letters.

Also, why the New Hampshire primary as opposed to general election time (whose fuzzy start date I guess really the conventions)?

Posted by: Bobby on July 1, 2003 03:13 PM

It is easy to understand. This administration are true believers in supply side economics and small government. So what if the states are cutting back and adding to unemployment and recession. Cutting back by the states is a good thing according to the ideology. Tax cuts are a good thing according to the ideology. The Bush economic policy comes out of a BELIEF in supply side economics. This is RELIGION, not science or social science or logic. No heretics are allowed, so even if someone thinks they know better, they must still toe the line or be taken down to the dungeons by Torquemada Rove.

Many including the press act as if Mr. Bush is not truly a born again Christian that believes in a literal translation of the Bible or a true believer in supply side economics or a true believer in conservative social prescriptions. They are absolutely wrong. Mr. Bush is a true believer in a fundamentalist sense and his beliefs sway his policy.
If you think that Mr. Bush is not a true believer and that he is "faking it" or just pandering to the religious right, think again. You will think that his policy makes no sense. His policy may not in the accepted science of economics but in the true belief of the supply side, it is true to the faith. George Bush is a true believer. If you understand true believers, then the policy of this administration makes sense.

Posted by: bakho on July 1, 2003 03:23 PM

Of course the recession has a macroeconomic cause!Like most recessions, this one has the Fed's fingerprints on it... The Fed began raising interest rates in mid-1999.

More specifically, the Fed announced its first increase of interest rates on June 30, 1999, from 4.75 percent to 5 percent. The Fed’s release from that day stressed the importance of U.S. growth on prices, noting that “Since [the crises of 1997-1998] much of the financial strain has eased, foreign economies have firmed, and economic activity in the United States has moved forward at a brisk pace.” However, the Fed also qualified: “The consumer price index was unchanged in May following a sizable increase in April that was associated in part with a jump in energy prices.” Despite its awareness of the special import of this sector (ENRON anyone?), the Fed would continue to raise interest rates through the remainder of 1999 and 2000.

1999
June 30 25 5.00
August 24 25 5.25
November 16 25 5.50

Posted by: Wes Widmaier on July 1, 2003 03:51 PM

Wes:

I can recall when the FED started raising interest rates in 1999. Some economists at the time were saying too little and too late. One of those economists was William Poole who likely knows more about macreconomics than the two of us put together. I know of no economist at the time that was forecasting a recession from this FED tightening. And even before Cheney uttered the "R word", the FED was easing up on its monetary restraint. To blame the FED now is like being the typical Monday morning quarterback.

Posted by: Hal McClure on July 1, 2003 04:04 PM

"President Bush is running around claiming that he 'inherited an economy in recession.'"

Well, geeze, unless someone is going to make a case that there wouldn't have been a recession if Al Gore or Ralph Nader had been elected, then we can fairly say Dubya did indeed inherit the recession.

But, OK, we can correct him and say he inherited an "inevitable imminent recession" if that makes people feel a whole lot better.

"It is also unlikely that the recession was caused by any Clinton policy - the recession was largely a result of decreases in business investment - and the federal government simply didn't do anything in the late 1990s that would have had a significant impact on the short-run macroeconomic situation."

Hey, if that includes the three-year downside after the bubble burst with employment falling, does it also include the three-year upside of the bubble when employment rose? Because they certainly seem happy enough to take credit for that half of the situation. ;-)


Posted by: Jim Glass on July 1, 2003 04:34 PM

Was it really three years ago that the Democrats were accusing Bush of "talking down the economy"? Those were the days. Are they now going to credit him with incredible forecasting abilities and for passing, in Greenspan's words, the "extraordinarily well timed" tax cuts? Haven't seen Reuben and company on the tube to take credit for the bubble lately.

Posted by: brian on July 1, 2003 04:42 PM

Replay the tape from the 1984 election. Reagan tried to pin the blame for the 1982 recession on Carter. Since Bush43 in EVERY way tries to be ReaganII (fiscal fiasco, cowboy hats, and neocon military adverturism) why shouldn't Karl Rove take a page from the Reagan 1984 reelection campaign?

Posted by: Hal McClure on July 1, 2003 04:43 PM

The bubble is the cause of the recession, or at least the cause of this stagnant recovery, and the Fed should have punctured the bubble sooner. That the Fed's rate increase caused the downturn is the sort of silly assertion I saw all the time from day traders on investment web boards.

Jim, you have a deal: I'll agree that the Dems won't take credit for the boom or blame the Repubs for the bust if you'll agree to the inverse. Not that we have any sway over anyone else's naive economics or spin. But it's not skin off my back since I've complained about this sort of thing my entire adult life.

As Brad says, Bush has one chief thing to answer for, and that's the complete lack of any responsible policy in answer to the economic downturn. Well, and adding insult to injury by dramatically cutting taxes *in the long term* without cutting spending and in the process exacerbating the looming social security crisis. In my opinion, this may not be technically criminal, but it's damn close.

Bakho, I've not really seen any indication that Bush is a supply-side true believer either in the vulgar Jude Waniski sense, or the more respectable academic sense. I think he just thinks that Tax Cuts Are Good and are a panacea. I think that he has advisors that know better, but they also know that these particular tax cuts are good for they and their cronies. Were this an earlier time with less scrutiny, I think there'd be Teapot Dome-like antics occuring--and I'm not sure there's not. Cheney == Agnew, except, you know, he's not as charismatic.

Posted by: Keith M Ellis on July 1, 2003 05:05 PM

"As I've said before, the failure of the Bush Administration to take any significant steps to boost aggregate demand over the past two years is remarkable and strange."

Brad, can you think of any reason why these people might want a depression? Any nightmare possibilities? Because--they know. Alan Greenspan has told them, if no-one else. So they likely want it. But why?

Posted by: Randolph Fritz on July 1, 2003 06:28 PM

The key to this Administration's policies can be found in the history of the Fourth French Republic, during which the French Communist Party pursued the "politique du pire"--the "policy of [making things] worse]." The idea is that you just keep turning up the heat and stirring the pot until something explodes, because you think you can somehow take advantage of the resulting chaos.

Posted by: Frank Wilhoit on July 1, 2003 06:36 PM

"But, OK, we can correct him and say he inherited an "inevitable imminent recession" if that makes people feel a whole lot better. "

Well, it's closer to being true - not that that seems to matter to Bush&Co.

But the important issue is what Bush did when faced with an "inevitable, imminent recession." Do you think his policies made sense, Jim?


Posted by: Bernard Yomtov on July 1, 2003 07:54 PM

Bakho is on the money.

Wilhoit is too. Develop that theme. It's a good one. I've always believed the key to understanding the unAmerican whomevers in the White House was nailing down what Cheney was up to with his recession bad-mouthing in 2000.

This is not incompetence, though the incompetence of the competence is astounding.

Question ... what institution blows up when the blowing up happens? What is destroyed?

Everything good since, maybe, McKinley.

It needs to be stopped by any means. Elections are no longer the means. Rove agrees with me.

Certainly, wondering in nice-guy style what's up with these people at this late date is causing giggles at Norquist's and Delay's houses. Get a load of the look on Bush's face after each line he delivers at the fund-raising events over the past few weeks. He definitely considers himself imbued. Compare the look on Kudlow's face every time he speaks in economic tongues on his CNBC show. Same same.

Excuse me, gotta go, cause God is instructing me just now. He even talks to agnostics.

That's a joke, W. I think.

What?

Posted by: John Thullen on July 1, 2003 08:36 PM

Bakho's conviction that "this administration are true believers in supply side economics and small government" seems little affected by the data on what's actually happening to the size of government. Who's the real True Believer here?

Posted by: Paul Zrimsek on July 1, 2003 08:43 PM

Bush and Co are true believers, all right, but they're true believers in McKinley-style government and are so sure of their own rightness and purity that they don't really care much who gets hurt. Bush has never really had to make a success of anything in his life; he's always had his father's friends around to bail him out whenever he screws up, so he's never really been confronted with how full of shit he really is.

I think he's managed to convince himself, against all logic and common sense and decency, that he's doing the right thing.

Posted by: agnosticus on July 1, 2003 09:12 PM

"You just keep turning up the heat and stirring the pot until something explodes, because you think you can somehow take advantage of the resulting chaos." That's a very good expression of my nightmares; I hope it's not so.

Donning my tinfoil hat, here...

Supposing, however, that to be true, what do people think this adminstration's strategy is? And who are its planners? It's hard to see how a depression could be beneficial to the right; I'd think it would more likely discredit them. And yet, if that is the goal, they must have some sort of plan. Ummm...real class war, maybe: a lot of the wins of right lately have involved setting the middle against the lower class and using the resulting confusion to make gains for the wealthy, as with tax cuts. With the ultimate goal dumping much of the middle into the lower class? Making the USA a very powerful third world nation? Ummmm...as Krugman has pointed out, the first is already under way. I suppose the second follows.

Someone with a calmer soul, tell me I'm wrong! Please?

Posted by: Randolph Fritz on July 1, 2003 10:50 PM

Randolph, weird as it seems, it could be true.

Several leading conservatives have, within the last ten years, made pronouncements that "what this country needs to restore its virtue is a depression and war" (I think that's a direct from Gingrich, but it may be one of the other characters).

Anyhow, the radical GOP is a collection of hard asses -hypocritical hard asses to be sure - but hard asses all the same, that see current America as having fallen into a sort of Sodom and Gomorah phase.

They actually believe that hard times will sober us up.

Posted by: E. Avedisian on July 2, 2003 02:18 AM

To follow up a bit on Avedisian's comments, it has been suggested that economic strife promotes family values. David Frum has written that wrecking the economy and tearing down the social safety net would be good for the poor and middle classes because it would force them to rely, Joad-like, on thier families to survive. In this view, wide-spread prosperity is seen as sapping the nations virtue. What to do with the decadant rich is not addressed.

Posted by: jimbo on July 2, 2003 05:37 AM

Funny how purveyors of hard times as a source of virtue are usually unlikely to suffer privation. That makes sense, I guess. They aren't the ones who need a dose of virtue - they are peddling virtue. Social compact sorts of programs were never meant to be, so anyone who benefits from them deserves to have their eyes opened.

Posted by: K Harris on July 2, 2003 05:42 AM

I was always under the impression that effective aggregate demand management in times of recession required #1) a reduction in tax rates and #2) an increase government spending? Hasn't this been done? I find it suprising that individuals believe that spending has been cut when even some neocon pundits are blasting this administration for their profligate ways.

Posted by: Confused on July 2, 2003 05:42 AM

Confused,

Aggregate figures can be tricky. The complaint about tax cuts is that the tax cuts that have been passed are not well designed to boost demand. Thus we put up with the fiscal cost without getting much Keynesian benefit when it would help. The fiscal cost of the tax cuts rises in later years, when there is no particular reason to think that a stimulus will be needed. Better to have put the money in the part of the income distribution where it is most likely to address inadequate demand, and to front-load it so that it will address current economic weakness without additional fiscal costs in years when it isn't needed. That's not what is being done. That's the essense of the critique. It isn't the gross numbers alone that are the problem, it's that these huge fiscal costs seem unlikely to bring the maximum benefit.

Posted by: K Harris on July 2, 2003 06:10 AM

Talk about true believers. If anything, I would say that this is a characterization of the bulk of Brad's blogreaders. The Republicans are EVILLLLLLLLLLL and stupid, fanatical and want nothing except to crush the poor and enrich the top 1%. All data will be forced into this prior, or ignored. Give me a break, guys. Don't wander off into Krugmanesque dementia.

Posted by: randy on July 2, 2003 06:30 AM

According to the CBO's monthly budget survey (June 9), revenues are down 60 billion compared to the same period last year, and spending is up 86 billion. How is this not a "stimulus to aggregate demand"? A 146 billion dollar swing in net deficit seems to me to be a stimulus. Just because he hasn't bothered with a high profile stimulus "package" doesn't mean the government isn't stimulating.

I suppose we could say we are testing the importance of animal spirits against mechanistic stimulation - is it actual stimulus that matters(mechanical stimulus), or a high profile announcement that stimulus is happening(animal spirits)? If the latter, we can save a lot of money by announcing a stimulus and not actually spending extra money. For example, announce that, to bring us out of the recession, the federal government will spend $100 billion more than they did last year as a "stimulus package". Maybe no one would notice that they were going to anyway.

Posted by: rvman on July 2, 2003 06:52 AM

Good substance randy. And your qualifications are?

Posted by: LowLife on July 2, 2003 07:08 AM

Thank you, Randy. The "crazed left" posters on this thread have now taken a leap from the "tax the rich because its good in itself" argument to actually countenancing the possibility that the Right Wing is actually trying to ruin the middle classes. Sheer lunacy.

Lowlife: randy's qualifications are, for starters, that he is probably moderately sane.

Just a reminder that it is possible to disagree with someone politically without believeing them insane, evil or retarded. It's important to keep this in mind.

Posted by: JT on July 2, 2003 07:58 AM

Increasing government spending while cutting taxes will not necessarily stimulate aggregate demand. Don't forget that part of that equation involves investment.

Tax cuts should stimulate demand by giving people more money to invest or to buy goods. But if we use the money to move production outside the country, or to purchase goods made there, we stimulate demand more in Guadalajra more than in Louisville.

Such globalization of finance and production severely limits the ability of any one state to ifluence its own economy. This is particularly true for the US, despite the size of our economy, because we are most dependent on imported money and goods. Who do we think is financing our growing deficit?

And this may explain why today's corporate heads lose little sleep over recession in the US. They want new markets, and so they are as happy building demand and consumerism elsewhere as keeping our own economy strong.

Indeed, class warfare gives them just what they want: control over a militarily powerful state that protects their overseas interests, with little chance that the lower class citizens of that state will have the time or education to wrest power from them.

Posted by: rstanton on July 2, 2003 08:34 AM

Increasing government spending while cutting taxes will not necessarily stimulate aggregate demand. Don't forget that part of that equation involves investment.

Tax cuts should stimulate demand by giving people more money to invest or to buy goods. But if we use the money to move production outside the country, or to purchase goods made there, we stimulate demand more in Guadalajra more than in Louisville.

Such globalization of finance and production severely limits the ability of any one state to ifluence its own economy. This is particularly true for the US, despite the size of our economy, because we are most dependent on imported money and goods. Who do we think is financing our growing deficit?

And this may explain why today's corporate heads lose little sleep over recession in the US. They want new markets, and so they are as happy building demand and consumerism elsewhere as keeping our own economy strong.

Indeed, class warfare gives them just what they want: control over a militarily powerful state that protects their overseas interests, with little chance that the lower class citizens of that state will have the time or education to wrest power from them.

Posted by: rstanton on July 2, 2003 08:37 AM

UH, revenue can be down due to tax cuts or it can be down due to poor economic conditions. Just because revenue drops does not make that an economic stimulus. As for spending, much of it is being spent on Iraq. Our men and women have been jerked out of their jobs and sent to the desert to live on low wages. Money has increased for homeland security and also for farm subsidy.

In the meantime, the states (most of them cannot run deficits) are cutting back on spending: projects, salaries, hires, etc. So whatever increase the Federal government is making in spending, it is being countered by state cutbacks.

I disagree with those who suggest that the GOP wants bad economic times to force a social revolution. Number one, it will stop them from being reelected and number two, poverty increases social problems, it does not solve them.

Mr. Bush truly believes that he is doing what is best for the economy with his tax cuts. He truly believes that he is benefitting his friends and returning favors to those who paid for his campaign and will pay for the next campaign. Mr. Bush does not mingle with ordinary Americans. He only hangs with the elites. The elites are benefitting nicely from his policies. Mr. Bush signed tax cuts that save him tens of thousands of dollars and save Mr. Cheney hundreds of thousands of dollars. His tax cuts were greeted with millionaire senators waving $300 checks. Mr. Bush does not understand how the rest of us live and why his fiscal policy is detrimental to the majority of Americans.

As for Mr. Bush not being a true believer supply sider because of increases in spending, the supply siders have always exempted military spending from government cuts. Their targets have always been social spending. Mr. Bush is all for holding the line or cutting in the social spending area. He has no qualms about burdening the states with the responsibility for education testing without providing the funds for the mandate. Mr. Bush has no qualms about asking state governments to provide manpower for security alerts, but refusing to give states money to deal with costs in manpower and overtime. The bottom line is government is spending more on military and homeland security but less on domestic and social programs.

Please read David Stockman's "The Triumph of Politics" to understand how a belief in supply side economics clashes with political reality to create huge government deficits.

Posted by: bakho on July 2, 2003 08:42 AM

Hey, folks--posting is slow for some reason, but please stop clicking the post button extra times--it just creates duplicates.

"purveyors of hard times as a source of virtue are usually unlikely to suffer privation"

Religious ones sometimes do undertake personal privation.

"possibility that the Right Wing is actually trying to ruin the middle classes."

We have the continuing shift of the income tax burden from wealthy to poor and middle-income people, the changes in the estate tax that will
allow vastly wealthy families to keep most of their wealth, the practice of dealing out different justice to their family members than
to the rest of us, and the implementation of a system of secret police and courts. It seems clear that this exactly what's under way.

Why do you read these signs differently? Or have you read them at all?

Posted by: Randolph Fritz on July 2, 2003 09:19 AM

Can someone give me a run down on why this recession happened?
My primitive thoughts on this are that the economy had been doing very well, but the stock market had been very over-valued. Companies having more money due to inflated valuations made projected demand higher than it should have been. Stock market bubble bursts, and then everyone reevaluates as supply is now much higher than the new expected demand, and the economy reflects this.
However, there is a ton of investable income available and productivity increases are truly remarkable.
Also, remarkably, consumer demand remained very high.
So, the recession is caused by a temporary decrease or shock in the expected demand.
Can anyone fill in the holes and make corrections on that basic picture.

Posted by: theCoach on July 2, 2003 09:30 AM

The stock market bubble was a gross misallocation of resources into technology that was not profitable causing overproduction and a glut that still has to clear its way out of the economy. Simply put the dot coms went dot bust. Much money was invested in Dot coms that went belly up with no return and assets that are now near worthless. Like the gold rush of 1849, a lot of businesses sprang up to service the dot coms, providing them with hardware, software, bandwidth, etc. When the dot coms went dot bust, they not only wiped out their own investment, they also took down many of their suppliers that went unpaid for products or services.

The failure of the dot coms released onto the economy a huge glut of used but serviceable computer and tech equipment and left telecoms with overbuilt bandwidth that could not be sold. Thus, not only the dot coms lost jobs, money and employment, but it hit other sectors as well.

On top of that, the Fed had raised interest rates in reaction to the dot com bubble and that had a negative effect on other sectors that were not over built or overinvested. So when the dot coms went dot bust, there was no emerging sector to step up. In 2000, we had energy price spikes due to market manipulations that severely impacted California and the rest of the country. When gasoline rises, the costs of transportation of products rises. California was also hit with blackouts that interfered with manufacturing.

The other sector to be negatively affected is transportation and toruism. People don't fly as much as they did before 9/11. This is a big hit on airlines, companies that service them, hotels, restaurants, taxis, etc. etc. The overreaction to 9/11 has not been helpful. 95% of the problem was fixed by locking the cockpit doors on the airliners. 4% of the problem is fixed by flight crews and passengers no longer reacting passively to threats and the other 1% is sucking up most of the money. Travel and tourism will likely remain a basket case for a while.

As the employment bubbled in the dot com sector, jobs in other sectors were exported. Those exported jobs don't just come back because of costs associated with transferring their location. Considering that Japan and Europe are not booming and clammering for US made products does not help.

We are getting closer to the end of the tech glut as increases in processing power and storage are making the hardware left from the dot bust less desireable or even obsolete.

What could have been done to soften the bust? The dot bust offered a one time chance to divert hardware to the education system and utilizing some of the equipment and bandwidth in training the next generation. However, an administration of old oil and gas geezers lack any vision or creativity for addressing the situation.

For an historical look at economic bubbles and busts, check out Kevin Philip's "Wealth and Democracy".

Posted by: bakho on July 2, 2003 10:02 AM

"...the changes in the estate tax that will allow vastly wealthy families to keep most of their wealth..."

Changes?? As if the Kennedys, Rockefellers, DuPonts, et. al., have lost most of their vast family wealth and political influence to the estate tax after a mere four or five generations? Hmmm....

"... As sometimes happens with Rep. Patrick Kennedy (D-R.I.), he let his mouth race ahead of his brain Wednesday night at a gathering of Young Democrats at the Washington nightspot Acropolis.

"After presidential candidate Howard Dean spoke, Kennedy delivered an impassioned peroration
against President Bush's tax cut.

"We hear that Kennedy told the crowd: 'I don't need Bush's tax cut. I have never worked a [bleeping] day in my life.'

"With that he got the audience's attention -- the dropping-jaws kind....

"Kennedy's spokesman, Ernesto Anguilla, told us yesterday: 'He was talking to the crowd; it was a rally-the-troops kind of speech about the tax cut. He was energizing the crowd and got caught up in it ..."

http://www.washingtonpost.com/wp-dyn/articles/A37316-2003Jun26.html

Posted by: Jim Glass on July 2, 2003 10:31 AM

Jim, if you are going to quote people, why don't you do it accurately instead of editing it to change its meaning? Just because the national media does it does not make it right. You damage your credibility by posting bogus quotes.

"Kennedy's spokesman, Ernesto Anguilla, told us yesterday: "He was talking to the crowd; it was a rally-the-troops kind of speech about the tax cut. He was energizing the crowd and got caught up in it and used an unfortunate word, which he regrets using. . . . And no one pulled him off the stage.""

Anguilla was apologizing for the "f" word, not for anything the Congressman said about the tax cut.

Posted by: bakho on July 2, 2003 11:41 AM

Bakho: I agree with your appraisal of the causes of the current recession. However, I question your suggestion that it is the Bush administration that prevented the educational system from "scooping up" much of the excess hardware. I don't recall much talk from anyone about this at the time. Besides, STATES - not the feds - control something like 95% of spending on non-college education. Why must it be the feds to do something like this? If anything, this is demonstration that publicly financed education systems aren't economically nimble enough to take advantage of opportunity - if one even existed. (I'm not convinced that the kind of technology made available - old office furniture, servers, routers, old computers loaded with whatever proprietary software various companies were using - is the sort of things schools really need. A lot of the malinvestment was in things like massively redundant fiber-optic networks - no one has a particular use for them, yet. What use is a bunch of Aeron chairs to a school? Schools need books which pay more attention to content and less to diversity and esteem.)

Our schools don't need high-tech internet connections when they aren't even managing to teach kids to read and sum. Their problems aren't financial or technological - they are institutional and cultural.

Posted by: rvman on July 2, 2003 12:13 PM

I do not believe we have an over abundance of fiber optic networks. We have have insufficient access to it, but it is unlikely to be more than we will need.
I imagine if every american was connected to that fiber optic cable, there would be some very interesting business opportunities.

Posted by: theCoach on July 2, 2003 01:13 PM

Mostly in porn. Seriously, we have huge excesses of fiber optics. For example, in Seattle, as of January 2002, about 95% of fiber optic cable laid was dark - unused. If it were economically efficient to use this stuff, it would be used. (This from the first article I found to state the level of overcapacity, hence the old date and limited scale.)
http://seattletimes.nwsource.com/html/businesstechnology/134390552_darkfiber130.html

Posted by: rvman on July 2, 2003 01:45 PM

rvman,
I realize it is dark. Very few people have access to it. I think if every American had access, it would not be so dark.
Imagine the Interstate Highway system if there were only on ramps in major cities, and in order to get on you had to pay an enormous licensing fee that in all practical terms only professional truckers could justify.
Would our Interstate system be in excess? and who should build out the on ramps?

Posted by: theCoach on July 2, 2003 01:49 PM

The reason why the Bush cuts are not stimulative is because they are directed towards stimulating investment in capital. However, we have overcapacity.

Cuts directed toward stimulating consumption would have been stimulative to the overall economy. However, the fiscal shot has been fired and was aimed poorly.

The spending is directed towards big business and defense. Not the kind of govt spending that would ease the burden on consumers.

That is why, what on the face appears to be stimulative fiscal policy is really just wasted resources. Bush only listened to what his elite friends said they needed.

Posted by: Dan on July 2, 2003 02:21 PM

Bingo Dan.

rvman
I agree about overcapacity of fiber optics. It does make it possible to develop products that utilize it, like Apple's video conferencing. I don't see grandma buying one just to talk to the grandkids unless the price is pretty low. Coach is only correct if the timeframe is a decade or longer.

Posted by: bakho on July 2, 2003 02:43 PM

If interstates were set up that way, then whoever was running them would be an idiot.

The internet highways system is a public good - obviously the government built the on-ramps, they built the whole thing. The problem with the fiber optics we have installed is that they are set up much like the pre-regulatory electric system - every company has its own wires. When we regulated, most of those wires were torn down. Something similar would happen if government started regulating the fiber-optics, we would still tear out most of the system as redundant. It was waste. It would be waste in a free market, it would be waste in a regulated market, it would be waste in a socialized market.

Posted by: rvman on July 2, 2003 02:56 PM

I think the effect of several years of low interest rates is being ignored as a factor - perhaps a major factor - in the causation of this economic down-turn.

The US economy is highly dependent on US consumer spending. About two thirds of GDP derives from this source.

Low interest rates caused record levels of consumer debt in the late nineties to present. And record lows in household savings as consumers took advantage of cheap financing opportunities, took cash out of their homes through refinancing, etc.

Now, consumers are tapped out. They are concurrently worried about their future employment.

Bush is not responsible for this situation. The Fed may have been a bit reckless, though.

However, Bush's tax cuts won't do what he says they will (which we all know). The cuts will make things a lot worse in a number of ways; lay-offs by revenue strapped local governments being just one.

What I see generally happening is the middle class to upper middle class consumer using whatever rebates are issued - along with any other tax savings - to pay off the debt they accumulated over the last few years.

Posted by: E. Avedisian on July 2, 2003 03:56 PM

I think Coach has a good point. Right now we have cable and DLS monopolies, offering fairly low speed (compared to fibre) connections at very high prices. So there is this bottleneck.

We have overcapacity of fibre but at the same time we have bottlenecks getting homes and businesses hooked up with high-bandwidth access. If we could find a good way to get that last mile covered - from the cable to the home/business - we could use up a good part of that capacity and stimulate a lot of new tech business.

Posted by: Dave Johnson on July 2, 2003 04:08 PM

I don't have any problem with the idea of finishing the network. I just don't want government anywhere near the installation of a massive hardwired two-way audio-visual transmission system into residences. Too Orwellian. (Financing through TIA, anyone?) I also don't think that finishing it is any sort of fix for the economy in anything but a fairly long-run way.

Posted by: rvman on July 2, 2003 05:12 PM

"Jim, if you are going to quote people, why don't you do it accurately instead of editing it to change its meaning?"

To intentionally mislead I always provide a link to the original quotation, just as I did there. An old usenet trick. It gets them every time.

"Anguilla was apologizing for the "f" word, not for anything the Congressman said about the tax cut."

Sure, but who cares about an f-word? The relevant statement in relation to the estate tax was: "I have never worked a [bleeping] day in my life."

Posted by: Jim Glass on July 2, 2003 07:40 PM

Let me state up front that I have no real strong opinion or knowledge on when a completed fiber optic infrastructure could be created. However, that being said, the majority of investors in the boom relied upon the assumption that these things were going to get built out quickly. Any way to make its completion more certain and bring it about quicker would provide a tremendous platform for business opportunities. It is important in my view that people believe (correctly ) that this will happen.
There is (or was) plenty of money and plenty of idle bodies to build this out.

Posted by: theCoach on July 3, 2003 03:51 AM
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