The President-elect’s Keynesian extravaganza won’t get the economy booming again.
(Page 2 of 2)
In retrospect, the economists he respects need some after-school tutoring, and I am available at the right price. The intellectual collapse represented by this exchange is one indicator of why George W. Bush will leave the presidency with approval numbers in the Nixon range. That first stimulus package has now proved to be a colossal waste of money, and the Bush Administration’s chief economic policymaker, Treasury Secretary Henry Paulson, has wrongly escaped responsibility for this utter failure, and the disastrously changed course of the Bush Administration’s entire economic policy over the past year and a half.
The failure of that first stimulus package, and the departure from supply-side economics it represented, in fact is what took us down the road eventually to the much more disastrous and calamitous $700 billion bailout, which has left federal economic policy lost in unchartered waters. Paulson, in fact, should go down as the worst Treasury Secretary in U.S. history, and, as the full magnitude of the current economic downturn becomes apparent, that may be widely recognized.
What Paulson and Bush should have done a year ago is go to Congressional Democrats, and the country, with the argument that the economy was weakening rapidly, and another strong dose of pro-growth economic policies was urgently needed, just like the tax cuts adopted in 2001 and 2003 quickly turned around the then developing recession. They should have called for making the Bush tax cuts permanent, and for cutting the outdated and uncompetitive federal corporate tax rate of 35% to 25%.
The Democrats may well have gone along, to avoid being tagged with responsibility for an economic downturn going into the election. Even Charlie Rangel, the ultraliberal chairman of the House Ways and Means Committee, was supporting a reduction in the federal corporate income tax rate at the time. The resulting boom in the real sectors of the economy would have washed over the deep troubles of the financial sector due to the collapse of housing prices, just as the savings and loan crisis of the late 1980s did not stop the astounding Reagan economic boom that effectively went on for 25 years.
If the Democrats had refused to go along, then just think of how different the politics of the past year would have been. The failure to see this opportunity, and save the economy from all the ensuing suffering, is again due to the intellectual failings of Henry Paulson. No doubt, he understands how to make hundreds of millions for himself on Wall Street. But as for national economic policy, I could find high school football coaches who would do better.
That first Paulson stimulus package was strongly supported by both Senators Barack Obama and Hillary Clinton as well, who were calling for even more of the same. The thinking behind that policy, and the much bigger stimulus packages Obama and the Democrats now support, is based on outdated, old-fashioned, discredited Keynesian economics. Keynesian doctrine holds that the way to boost economic growth is for the government to run a deficit, which will supposedly boost overall spending in the economy, which is supposedly the way to spark economic growth. (Notice how this doctrine has been hidden in the closet for the last 30 years, when harsh criticism of the federal deficit was politically useful in bludgeoning supply-side tax cuts, and stopping even further supply-side reforms.)
Keynesian doctrine bloomed in the 1930s, and was the intellectual foundation for the failed New Deal. It nevertheless was thoroughly embraced by liberal academia, because it was so politically useful in promoting big government. The thorough and repeated conservative, free market critiques of the doctrine were mostly ignored. Keynesian doctrine was finally fully discredited in the 1970s, when deficits seemed only to help promote inflation, rather than economic growth. Now the supposedly change Democrats are taking us back to the future, way back, 80 years backward.
No doubt, there will be some natural tendency towards economic recovery, probably not until 2010. But it will be muted, depending on how much of the liberal/left agenda is enacted. If taxes are increased on higher income savers and investors, as Obama has proposed, and the Democrats fully indulge their global warming fantasies and impose massive new regulatory costs on the economy, along with central economic planning energy policies, and the unions are given carte blanche, including protectionism, any recovery is going to be mostly short-circuited and short-lived, with the eventual downside unlimited. With supply-side economics out, brain dead Keynesian economics in, and all of these potential policy disasters set in motion, the best long-term prospect is stagnation and lagging living standards.
To really get America booming again, we should first make the Bush tax cuts permanent. The federal corporate tax rate again needs to be reduced to 25%. We should also cut the middle class income tax rate of 25% to 15%, resulting in a flat tax of 15% or less for 90% of taxpayers. Along with policies to produce low-cost reliable energy supplies for the economy, a return to sound long-term monetary policies, and some additional reductions in unnecessary regulatory costs (see Sarbanes-Oxley and mark to market accounting regulations), this would restore the 25-year Reagan boom.
Republicans need to loudly reject the Democrat Keynesian witch’s brew, and loudly advance these pro-growth policies. If they do so, they may return to power sooner than now seems possible. If reality drives the Democrats out of their policy nostalgia for the 1930s and 1960s and towards this pro-growth agenda, they may succeed far more for far longer than now seems possible.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?
H/T to National Review Online