Commentary Magazine


Re: A Short Crisis?

Gordon, David Boaz of CATO shares your skepticism:

Some economists talk of “stimulating” the economy. But we’re already headed for a trillion-dollar deficit. If that won’t stimulate the economy in the view of Keynesian theory, what will? A $1.2 trillion deficit? $1.5 trillion? Whatever happened to the Democrats’ denunciations of Bush’s fiscal irresponsibility? The money for the stimulus must come from taxes, which will then mean someone has less to spend and invest; or from borrowing, which will just transfer the money from one party to another; or from yet more money creation, which at these levels would threaten a roaring inflation. As Russell Roberts said on NPR, “if politicians know how to stimulate the economy, why wait for a recession? If you can make the economy grow, why wait for bad times?” The answer is that they don’t know. It was politicians trying to manipulate the economy and homeownership rates that got us into this mess. From now on, they should remember the principle that doctors are taught: First, do no harm.

Grover Norquist is more biting:

They think you can tax work without causing unemployment. They think raising the capital gains tax will raise money and not hurt capital investment. They think regulatory costs are paid by Santa Clause or Tinkerbell.

It remains to be seen whether the fondness for tax hikes that permeated Candidate Obama’s campaign rhetoric will make its way into the agenda of President Obama. He was exceptionally vague and inarticulate on the subject today. See if you can figure out what he is saying:

Q: Thank you. This question is about taxes. Will you let the Bush tax cuts expire at the end of 2010 or will you use legislation to repeal them before that?

PRESIDENT-ELECT OBAMA: Well, I said during the campaign that my plan represented a net tax cut. And that’s important to remember. Ninety-five percent of workers in this country would receive a net tax cut under my plan.

Now, the reason that’s important is not only is that good for families who are struggling, but it’s also part and parcel of what we need when it comes to stimulus. We’re going to be putting money into people’s pockets so that they can spend on buying a new computer for their kids’ school, so that they can, you know, make sure that they are able to deal with heat and groceries and all the other strains on family budgets.

Now, what I’ve also said during the course of this campaign is, we’ve got to restore some balance to our tax code. And the Bush tax cuts were disproportionately targeted towards the very wealthiest Americans. Those who are making more than a quarter million dollars a year can afford to pay a little bit more.

And it is important, if we’re going to help pay for some of these expenditures that are absolutely necessary to get our economy back on track, that those who are in a position to pay a little bit more do so.

Whether that’s done through repeal or whether that’s done because the Bush tax cuts are not renewed is something that my economic team will be providing me a recommendation on.

But the basic principle is that we’re going to provide tax cuts to the vast majority of Americans, the middle class that have been struggling over the last eight years; that those who have benefitted disproportionately over the last eight years, the very wealthiest among us, will pay a little bit more in order for us to be able to invest in the economy and get it back on track.


Getting back to the enthusiasm for more and more spending (that’s what it is, but “stimulus” sounds so much more justified):  what is missing is a compelling  case that historically this has proved effective. That would be hard to  come by. Also absent is any proper appreciation for the reality that government technocrats  are really no better decision-makers than those in the private sector.  Just look at the last few months: We must buy toxic assets. No, that won’t work. Okay, for Citigroup we really must. Is it any wonder investors are paralyzed?

That is not to say that government should do nothing. The public won’t stand for inactivity, and there are positive steps the government could take (including immediately ruling out any tax increases). It is a plea to those with great political popularity that they act with a proper appreciation of their own limitations and the adverse consequences that come from unbridled and constant fiddling from government. That would be change we can believe in.

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