Sunday, November 16, 2003
Bush's scorched earth economic policy revisited
Posted by David Smith at 01:55 PM
Category: Thoughts and responses

A poll today for The Sunday Times on the eve of his state visit shows that 60% of Britons think Bush is a danger to world peace, 37% regard him as "stupid" and 33% as "incoherent". The British have never really warmed to this president, hence the harsh verdict.

My view remains that where there is incoherence, it is in economic policy. The fact that he inherited a budget in structural surplus was not a tribute to Bill Clinton but the economic reality of three years ago, for a variety of reasons. And that surplus has been turned into deficit - a record $374 billion for fiscal 2003, rising to $475 billion in 2004 - and probably staying above $400 billion for the foreseeable future, according to most independent forecasts, including new Congressional Budget Office projections.

This loss of control over the public finances is not an argument against tax cuts - which other things being equal I am always in favour of. It is a lesson that you can't cut taxes and hugely expand public spending at the same time. Perhaps it will all come right, and certainly those third quarter growth figures suggest something is working. Somehow, though, I doubt this deficit is going to be self-correcting.

The other big problem about Bush's economic policy, of course, is protectionism, including the disastrous steel tariff. This is no policy for a self-respecting Republican president to be pursuing.



Do you really believe these forecasts of surplus will actually occur given the economic slowdown that began in the prior administration which were only profoundly affected by the 9/11 attacks. You express the problem in a curious fashion. What policies would you advocate given the then current situation? What policy mix would you advocate to strengthen the economy, promote growth and restore investor and public confidence so necessary to the economy and so damaged by the 9/11 attacks. And finally, what policy tradeoffs and consequences would you accept?

Why are huge government budget surpluses for the foreseeable future good economic policy? Although your column did not exactly make that statement, the tone was unmistakeable. Are interest rates lower then they might be because of the absolute elimination of the need for current credit and the concurrent reduction of the national debt? Well, both current and long-term interest rates are lower than they were when the US was running budget surpluses. Is inflation a problem because the currency is debased from printing money to pay for deficits? Well no, inflation in the US has not been a problem for many years through both the years during the late 80's and 90's through surplus and deficit because the Fed has controlled the money supply. Do investors fear the budget deficits? Well, the stock market seems to like the current economic climate, and, as the market is a discounting mechinism, it's voting that it expects the economy to continue growing and company profits to grow as well. I don't have trouble with your critique of excessive spending and the silly trade policies of the Bush administration related to steel and underwire bras. These are foolish economic policies generally, not just foolish Republician policies. David, it's not incoherence, it's domestic politics.

Posted by: Gary Bezowsky at November 25, 2003 06:09 PM
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