Semi-Daily Journal

Certainly W is a big spender---_for now_. The Republican plan is to rack up big deficits and then cut domestic spending.

CBPP has a good issue brief on a sign of the possible beginning to a Republican attack on Medicare:
http://www.cbpp.org/11-3-03health.htm

So now The Economist, the fairly conservative (but not like the National Review) and widely respected economics magazine, is saying what Paul Krugman and Brad DeLong have been saying. Part of me wants to send this to chumps like The Man Without Qualities (musil.blogspot.com) and Don Luskin, but I know that they will ignore it.

The Economist totally glossed over the fact that the Democratic candidates said they'd repeal ALL (Dean) or some (many others) of the smirking chimp's tax cuts.

The starve the beast strategy under Bush is being brought to you by the same people and strategy that brought you Iraq -- neither had any basis in reality. The neocons convinced Bush that the US would be welcomed as liberators in Iraq and that it would easily be turned into a western style democracy that would represent US interest in the mid-east. We are now seeing the consequence of this strategy that had no basis in reality and
was doomed to failure before it began. The same neocons believe that they can create a crises that will lead to the American public giving up social security and other social safety nets without doing any damage to the economy and stock mkt. This strategy has no nore of a basis in reality or chance of working out than the invasion of Iraq. The strategy of starving the beast is a policy of destroying the village to save it. Long before the crises they believe in returns us to some form of pre-WW II primitive capitalism the economy and stock market will suffer severe damage. Structural federal deficits do little damage to the govt, but they do massive damage to the economy. In the 1980s when we had structural deficits that absorbed some 10% to 20% of domestic savings the influx of Japanese capital offset the deficit and prevented interest rates from rising. But the influx of foreign capital forced up the dollar so that crowing out worked through the dollar rather than higher rates. Doesn't anyone remember the "rust bowl" of the 1980s. Now, Bush is creating structural deficit that will absorb some 20% to 30% of domestic savings. The problem is that there nothing comparable to the Japanese saving surplus of the 1980s to bail us out this time.I challange Fromm or anyone that believes that returning the US to some sort of per-WW II primitive capitalism will make the US better off.
They have some sort of mistic belief that the perfect competition model we teach in intro-econ ever existed or that creating such a system would make us better off. Anyone that has made a serious comparison of US economic growth or improvement in well being before WW II to post WW II can not help but conclude that the modern mixed economy is far superior to the primitive capitalism they profess to believe in.

I have seen some of the conservatarian frequenters of this site who have gloated that the present somewhat aberrant strong economic growth is proof positive that Bush's economic program is good. However, we critics of his program have been pointing out all along that the current level of deficit spending is not expected to make things worse in the short term, but rather in the long term. So no amount of cheerleading about strong productivity growth leading to corporate profits without job growth right now is going to allay those fears about the future.

I think the economist is referring to the plan of many Democratic candidates to use the repealed tax cut money to pay for a universal health care system. Given the choice in fiscal irresponsibility, The Economist would probably want to give the money to the rich.

I think The Economist is being too harsh on candidates that are not currently the executive. American voters, contrary to what politicians tell them all the time, are not that smart. If a democrats said they would sensibly raise taxes, many would rather vote for insolvency.

The Economist said the same thing in 2000 when they endorsed G.W.B. They said, both Bush's and Gore's tax plans promise too much, so, we like Bush. If Gore we in control right now, however, I don't think we would be facing this situation of rising deficits, and public denial.

The Economist is full of hope, especially when they want capitalism to succeed.

How would you like to be the guy/gal who gets the responsibility for cleaning up the mess this administration is making? It ain't agonna be easy, and it ain't agonna be pretty.

I think they give Reagan too much credit. Wasn't the "fix" for his original tax cut worked out by Bob Dole and Tip "Dead on Arrival" O'Neill?? Wasn't SS reform cooked up by the Democrats and only signed by Reagan so he could let go of the third rail?? I think they are assigning to Mr. Reagan, policies that were not his policies. Help me out here, but were not most of the tax increases under Reagan instigated by Congress and Reagan more or less went along??

As for today's deficit, there is a lot of complacency. After all, Reagan ran large deficits and we survived. Why would deficits today be so bad? Of course the CEO President is used to running companies that do not turn a profit. Why should red ink worry him now if it did not in the past?

>>Wasn't SS reform cooked up by the Democrats and only signed by Reagan so he could let go of the third rail<<

Mostly cooked up by Alan Greenspan...

Spencer:

Stephen Fromm holds no such view.

Bakho:

It's "The Return of Godizilla". Don't you know that sequels are always much worse than their already bad originals?

Spencer:

Stephen Fromm holds no such view.

Bakho:

It's "The Return of Godizilla". Don't you know that sequels are always much worse than their already bad originals?

Building on what Brian said -- I've been waiting for awhile to see whether the standard average conservative will EVER turn on Bush. Democrat-hating seems to be the absolute bottom line for a lot of libertarians and conservatives -- no matter how bad the Republican is.

I'm fairly acclimatized to my powerless position in the political world of today. What I'm basically hoping for is that the raving Bush conservatives be driven from office in 2004 by less-insane conservatives who've decided to support the (wimpy, centrist) Democrats. But I'm not counting on that happening.

The "starve the beast" conservatives are frauds planning sabotage, and I believe that a lot of people who should know better are playing along. They're all playing with fire and if that game is played for another decade the consequences will be intense. (Something like a state of emergency, a purge, and a rewrite of the constitution).

Of all the astounding claims made by the present administration -- and from the economy to the war in Iraq, there have been plenty -- the one I find utterly incomprehensible is the frequent comparison to Ronald Reagan. Its hard to imagine two Presidents less alike in American history than Reagan and Bush.

Reagan came into office in the 8th inning of a 15 year bear market. Interests rates were high, Oil prices were up, economic and capital investments were down. The economy had been through not one but several recessions in the preceding decade. Everyone hated the stock market.

President Bush came into office facing very different economic (as well as foreign policy) climate. The market had just ended an 18 year Bull run -- the longest in history. A massive VC over-investment bubble had just popped. Excess capacity existed in many technology and manufacturing industries. And too many people had recklessly plowed cash into the market just before the debacle was in full swing.

Here’s the great irony of the story: Bush had brought with him many of Reagan’s team. Despite facing glaringly different problems, the former Reagan crowd trotted out the same old play book: they cut the top tax bracket -- only it was an incremental decrease from 38% to 35%; Despite coming off the biggest investment bubble the world has ever seen, they saw fit to cut the capital gains tax rate from 20% to 15%. It was almost as if their attitudes were “Hey it worked before, so it should work again.”

You know that your fiscal policy is in trouble when attempts to compare it with Ronald Reagan's fiscal policy (!) are viewed as too flattering.

So, about this problem of the missing adults. I was aware of all the things the Economist offers about Bush tax policies, but seeing them all squashed together in one paragraph sort of turned on a light. Despite a massive change in fiscal outlook, intended to (depending on the day and the audience) spur jobs, spur savings (can't do both in the near term, now can we?), give "our money" back, there was no effort to make the economy work better on the micro level. Do the rates and move on. At very least, O'Neill and the Council of Economic Advisors were not strangers to the notion that "reform" could be more subtle and effective than just shoveling cash into rich pockets. Heck, even if you're main intent is shoveling cash into rich pockets, you could spend a couple of minutes on efficiency issues.

The notion of shifting to a consumption tax is obviously massively regressive. These are the wrong guys to trust with that job, no matter what they say about building in features to make a consumption tax less burdensome for the poor.

sorry Fromm

Spencer: no offense taken. I don't even see where you refer to me, even indirectly.

Frankel points out that the political climate under Reagan was much different. Can anyone imagine Mankiw doing what Marty Feldstein did and having a job anywhere in the US?

http://www.ksg.harvard.edu/news/opeds/2003/frankel_advice_ft_033003.htm

In 1983-84, Martin Feldstein, Ronald Reagan's CEA chairman, gave speeches and testimony predicting years of record budget and trade deficits. This went over badly among White House aides, even though the predictions turned out to be accurate.

Do economic advisers ever quit in protest over a policy disagreement? Mr. McCracken considered leaving when Mr Nixon rejected his advice on wage-price controls but postponed the resignation for four months to minimise negative publicity. Mr Reagan's first CEA chairman, Murray Weidenbaum, did the same thing. The president was forever giving speeches about the need to cut government spending and yet, when faced with hard budget decisions, repeatedly declined the aggressive option, even in areas of spending that the CEA chairman considered wasteful (military as well as domestic). In late 1982, Mr Weidenbaum decided to leave his position early,owing to his frustration over this issue and the knowledge that he could not defend the coming budget deficits. But, out of loyalty, he did not publicly resign in protest, nor has he revealed the story since.

From this I gather that the Reagan administration was much more tolerant of oppposing views and apparently took the advice of their economists (eventually).

Brad, I did not know about Greenspan's role in the Social Security deal in the 80s. How did they manage to get bipartisan support? People just rolled over when their payroll taxes went up by 50%? It is difficult to believe that people accepted that increase and are willing to watch this administration give away those taxes as income tax reductions for the wealthy.

">>Wasn't SS reform cooked up by the Democrats and only signed by Reagan so he could let go of the third rail<<

Mostly cooked up by Alan Greenspan...

Posted by: Brad DeLong on November 6, 2003 06:16 PM"

Brad, no kidding? Greenspan helps draft legislation increasing payroll taxes to help pay down the national debt and shore up SS, and then he says that the excess money is a problem that needs to be addressed. He does this at the same time W is proposing to "give the money back" to people paying income taxes by explicitly omitting payroll taxes. Cute.