Brad DeLong's Semi-Daily Journal (2004)

It would seem that the Treasury lacks the imagination necessary to perform their functions in the face of the White Houese's active politization of every decision. Ask Karl Rove to give them their due and he will ask what will it contribute to his president.

And the Treasury lacks total leadership within, I mean a Snow Job? He is not a creitical thinker, just another American coprporate suit that enriched his pension while cutting the benefits of his workers. The man is a buffoon, as in his statements about jobs or well, just about anything.

pt martin wrote: "Ask Karl Rove to give them their due and he will ask what will it contribute to his president."

What it could've contributed to his president was an economy and a fiscal situation that are significantly better than they are now. The big question is why Rove and his president weren't interested despite the obvious political advantages that not-so-reckless economic policy could've delivered.

One would think a Republican Adminstration would have a strong Treasury Department. I am guessing that there are more than a few smart Republican investment bankers.

Something I have heard, however, is that the Bushies have always been uncomfortable with Wall Street types, because they don't measure up "culturally." I have no idea if it is actually true, but it does make some sense.

The lack of expertise at Treasury is also consistent with the New Republic's view that this administration is uncomforable with experts of any kind.

It's easy to understand if you've read the book Paul O'Neill wrote. ALL policy is made to please "the base". The base's need are determined by themes to attract votes developed by Rove. It's a very circular policy arrangement. It requires no leadership. You simply make the demagogic statements your policy. You CANNOT change your mind; that would alienate the self-created base. Thinking people need not apply.

"The big question is why Rove and his president weren't interested despite the obvious political advantages that not-so-reckless economic policy could've delivered."

You know the White House talking point:

We are in the midst of a robust economic recovery.

Repeat this one-hundred times daily, until you believe it, after which, repeat only as necessary.

Yes, TL, but that's still what they do. I'm asking why,/i>.

It's a rhetorical question, of course...

What opportunitis/policies has the Treasury dept missed? Or is it a matter of not getting the normal number of press releases? It seems only normal for the Tresury Dept to get more pub in the middle of the longest economic expansion and the biggest run up in stock market history than during what has been essentially a war. Greenspan also sucked off lots of opportunities for the other Tresuary past time of second guessing interst rates and currency values by dropping the floor out from them.

I have only read pieces of O'Neils book, but his biggest point seemed to be that we should be running a 3.5% defecit instead of a $4.5% defecit so we could hang out with France and Germany at G8 meetings. Is that the reckless policy we are taking about a 2% gdp tax cut vs. a 1% gdp tax cut/year over 10 years? Or is there something else that Treasury should have/ could have done and was over ruled by Karl Rove?

Dex,

Well, yes, IMO. It's inherently a bad argument since Republican economic policy amounts to enacting supply-side tax cuts in the face of a demand-side recession and a capital glut that's been with us since the economy took off under Clinton. Republican policy couldn't have been truly better without ceasing to be Republican. Still, it could've been not as bad, or, for that matter, worse.

Also, as I'm sure you understand, it's unfair to lay all of the blame on Karl Rove. What the Republicans have done would've been impossible without the thorough triumph of right-wind pseudo-economic ideology across the party and into what passes for the moderate mainstream. That, of course, was what the cult of Clinton-hatred and the siege mentality engendered by the right's perpetual kulturkampf was and is all about.

So, given a choice between better stewardship of the economy and relying upon the same tried-and-true political approach that got them where they are today, the Bush administration has always chosen the latter. I, for one, find that utterly unsurprising.

Fascinating by inserting "supply side" in front of tax cuts and then putting the whole thing before "demand" recession (I have never heard of a "supply" recession but what the heck it sounds like a fun idea) you set up a wonderful verbally reinforced contradiction. It almost makes me believe that cutting taxes has no effect on demand. Is your argument that we should have raised taxes and slashed spending to lower the deficit in oreder to appease the bond market? ( and I say lower because it would have been unimaginable that all of the lost revenue could have been made up) If so then we will leave it at that.

If your argument is that we should have front loaded the tax cuts to focus on boosting short term demand then we can argue the fine points of it.

I also take exception to laying the entire blame of the deterioration of the political tone in Washington on right wing Clinton haters. I remeber where the term "Borking" came from as well as the vicious personal attacks aimed at Newt Gingrich and Clarence Thomas. I believe that President Clinton was poorly treated in the Monica Lewinsky scandal, but you can hardly make the case that he was serenely floating above the political muck before that.

I am sorry if I have mischarectorized your argument but I was really trying to get at just a couple policies that Treasury could have made that would have made a material difference over the last three years.

Dex: "I am sorry if I have mischarectorized your argument..."

TM: I appreciate your courtesy, but you needn't feel sorry. I've made the same argument repeatedly over the past two years or so, and only rarely gotten a reaction of any kind, positive or negative. So, I've resorted to stating it more sloppily, both in the interest of brevity and in the hope of provoking some response.

Dex: "I have never heard of a 'supply' recession..."

TM: oh, c'mon. A supply-side recession results from a lack of sufficient amounts of capital, resulting in higher interest rates. The US has had plenty of capital for a long time now. The current recession was set off by the bursting of the stockmaket bubble; the bubble was caused by th fact that for several years under the Clinton administration, the economy was producing more capital than could be invested prudently, or even competently.

In this context, cutting taxes on the rich and on capital formation was an extremely foolish thing to do.

Dex: "Is your argument that we should have raised taxes and slashed spending to lower the deficit in oreder to appease the bond market?"

TM: No. In broad terms, I don't see a need to "appease" any particular market. I'd prefer action to correct whatever imbalances exist in the economy in the (IMO) well-founded faith that the markets, by definition, can take care of themselves as long as the economy is in good general shape.

Having said that, I don't mind admitting that I don't know precisely what the best response to the recession would've been*. I will say, though, that the Gore administration would've put together an appropriate program, whereas the Bush administration would not, did not, and, for all practical purposes, could not. That's essentially what this thread's about.

Dex: "If your argument is that we should have front loaded the tax cuts to focus on boosting short term demand then we can argue the fine points of it."

TM: Yes, that's pretty much it. More below, behind the *

Dex: "I also take exception to laying the entire blame of the deterioration of the political tone in Washington on right wing Clinton haters..."

TM: Well, we'll just have to agree to disagree about that (Disclosure: my opinion on this has been greatly influenced by my experience in working with Republicans on local politics, so it's unlikely that anything you have to say on the subject will change my opinion). Plus, I didn't and don't lay the entire blame on anyone. Just, in this case, a very large proportion of it...

=========================
*OK, I'll go out on a limb and say it should've involved demand-side tax cuts on the middle class and poor, block grants to states which agreed to temporarily cut their most regressive taxes, another increase in the EITC and maybe the minimum wage, and a modest, carefully targeted public works initiative, all preferably with a total cost small enough to leave the federal budget nearly in balance. Depending on the timing, I think a modest increase in taxes on capital formation would've been a good idea, too.

Thank you Tom, that is exactly what I was looking for. I am new to this forum and realize that this probably has been a battle field that has been stomped into the ground on this web site. I was interested in getting a little more meat out of it than your original "better stewardship".

I will go out on a limb as well and say I agree with expanding EITC and raising of the minimum wage (modestly so as not to unduly keep the lower experienced and skilled out of the market place). Block grants to the States simply seems like a dodge for moving debt around. Given the states fiscal moves of the late 90's of giving large tax breaks and/or increased spending bailing them out almost seems like a moral hazard.

The main points I would disagree on would be on the "demand" side cuts on the middle class and poor. Not that I disagree with cutting taxes for these groups but for one what exactly is a "demand" side cut? For another assuming we are talking about Federal Income tax, confining tax cuts to these groups would yield a fairly modest stimulus and if confined to a brief period fairly ineffective. Even Bush's massive tax cuts are projected to be around 2% of GDP over 10 years. While a huge absolute number not many systems in nature respond dramatically to that percentage change. Are you perhaps arguing that a fiscal stimulus is largely irrelavant but if you have to have one it should be spend progressively?

Perhaps the best solution would have been to address the payroll tax issue, maybe exempting the first 15,000 of income. No idea how much that would be. I am fairly certain no administration Gore, Bush or Nader would have been able to finesse that one given current political climate.

I am engineer, so its not surprising I have not heard of a capital glut (small joke). I had always heard that the United States had a savings shortfall, and that foreigners investing in the US kept us a float based on the assumption (in the late 90's anyway) of higher long term growth expectations and higher dollar valuations. Did the Clinton Treasury ever consider talking down the dollar to chase off some of this hot capital and drive exports?

For the record, Newt Gingrich did come up with a very nast list of adjectives to be applied diligently to the "Democrat" party.

"sick," "depraved," "pitiful," "weak," etc.

This is not a good man. This is a third-rate professor who divorced on his wife while she was in the hospital.

Dex,

Thanks! But let's not get carried away here. I'm not an economist, and I'm way out of my depth on this website, so much that I almost feel guilty over posting here. I generally post only on slow days, or if there's some wisecrack I can't resist making ; ). I keep expecting (hoping, actually) to get cut off at the knees by one of the more accomplished posters, but it hasn't happened yet.

But, since we've come this far...

I, too, think that making payroll taxes less regressive would be a good idea, even if it was done only as a "temporary" (haha) countercyclical measure. That's especially if the revenue shortfall that'd result were made up by increasing the upper limit on what's taxed. I should've remembered it as part of my dream stimulus package.

The thing about block grants to states came from an editorial I read. the writer had state sales taxes in mind. As far as the "moral hazard" of block granting money to states that had increased spending during the heady years of the Clinton boom, I'm not so sure. First, with the block grants being contingent upon the states agreeing to cut other taxes, the effect would've been revenue-neutral for the states. Second, I read somewhere that* much of the increase in state spending during that era was in expanding Medicaid elligibility, which surely provided a demand-side stimulus itself, and which therefore wouldn't be a very good item to cut in the current economic environment.

You asked, "Did the Clinton Treasury ever consider talking down the dollar to chase off some of this hot capital and drive exports?" I don't think so. As a matter of fact, I remember an extremely hotly worded Buttonwood column on the subject when the Bush administration decided to do so. I gathered that it wasn't a very good idea.

Bottom line, though, is that there are people (like Brad DeLong) who know all about the things I'm guessing about. As President, John Kerry will have as many of them as he can get in his White House and Treasury Department. In total contrast, the Bush administration's record on such matters is both well established and abyssmal.

*An acquaintance of mine who was very active in the Republican Party once remarked to me,"One phrase I've never heard anyone say at a Republican Party meeting is, 'I read somewhere that...'"

That Buttonwood column I mentioned,

The world suddenly looks bleaker, Sep 30th 2003:

The Bush administration is playing with fire by adopting a weak-dollar policy for political ends

http://www.economist.com/agenda/displaystory.cfm?story_id=S%27%298%2C%25RQ%27%21%21%20%214%0A

is now premium content, but in my files I recovered this quote:

"Underlying some of this column’s cheer these few weeks past has been an assumption that President George Bush and his administration were not as stupid, short-sighted, parochial and economically illiterate as they sometimes appear. Buttonwood now realises that this was a mistake and retracts this view as hopelessly optimistic and naive."

Why is this suprising? Under the Bush administration, every branch of the executive has either been trained to think only in political terms, or ignored. This has been a complaint since day one, that Bush did not want to analayze a policy's effects, except for how it would affect re-election.

We have a Justice Dept that selectively pursues cases solely based on how they will play to the republican base, we have a defense dept steam-rolled by a small clique of neo-con wackos, an EPA intent on shriking its duties off on states, and a State and Treasury utterly sidelined. I also hear there's a war going on in Iraq, I am all astonishment.

Tom,

Again I appreciate the responses. I know it takes time to put together a carefully thought out response and not some throw away comments. Too often these kind of message boards degenerate into something resembling the Rockridge town hall meeting in Blazing Saddles (if that's too obscure, everyone sits around saying "I agree with Vance Johnson when he says that Howard Johnson is right about Y Johnson, etc "). As I mentioned I am an engineer by training and I also expect/hope to be cut off at the knees at anytime buy someone with more knowldege and the kindly intent to share it.

I don't doubt your belief in the Kerry Administration's ability to get good ecomomically literate people in advisory roles. What I do doubt is their ability to get policy made. John Kerry seems to be the consummate political animal, and its not only the Republicans who have a greedy base to feed. The policy statements I have seen to date from the Kerry Campaign have been long on motherhood and apple pie and rather short on specifics. The very same comments that Patrick makes above about Bush running every policy through the republican political grinder where made about Clintons policies. Its far to easy to see conspiracies and hidden agendas in almost everything in Washington, and it gets us no where. I want to debate specific policies with real numbers. It had to grind my teeth just as much four years ago when people were campaigning against the Clinton/Gore administration and not for Bush. I want to be able to vote for a candidate not against one.

Dex and Tom,
Excellent posts. It would be very unfortunate if either of you were ever "cut off at the knees" because you both articulate your positions as well as anyone.

Keith,

Thanks! That made my day.

Dex, Later, dude. I'm about talked out. Besides, there's a new thread about Kerry's governing style that we can move to.

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