I don’t know if Gov. Vilsack has taken any courses in economics, but Thomas Nugent is attacking a “Vilsack Manifesto” that looks like it was co-authored by John Kasich (a conservative Republican). Nugent scoffs at the following proposals: (1) declare war on pork; (2) end corporate welfare; (3) cut oil and gas subsidies; and (4) trim government waste.
Even Nugent scoffs at cutting subsidies to this company, he accuses us Democrats of “wealth redistribution schemes”. Nugent is also defending massive Federal deficits, which shift our tax burden onto our children.
But let’s put aside his defense of fiscal irresponsibility, and imagine that we joined Vilsack in a macroeconomic lecture given by Professor Nugent – that was also attended by some pesky student.
The question that should be asked in response to this accusation is: “Governor, what might you have done to avoid a major economic decline in the face of the technology-sector collapse and an overly tight monetary policy?”
Pesky student: Mr. Nugent – we did have an investment led recession in 2001, but I hope that you are aware of the fact that interest rates were falling even before President Bush took office. So I don’t understand why you believe monetary policy was overly tight.
Since Nugent’s focus was on fiscal policy, he went on:
If I read the governor’s comments correctly, he would have preferred to preserve the budget surplus, raise taxes, and cut spending – all actions that could have lead to an even greater economic decline. Come to think of it, that’s just what Herbert Hoover did.
Pesky student: The governor was not endorsing procyclical – or Hooverian fiscal policy. Rather he was talking about long-run fiscal restraint. As I read the General Theory by Lord Keynes, recessions are not permanent features of the economy so do not need the type of long-term fiscal stimulus that we are endorsing.
Nugent again ignores this student and continues:
First of all our economy is strong, not fragile. If GDP growth in excess of 3 percent, record employment and housing starts, $100 billion in unexpected tax revenues in fiscal 2005, and low interest rates are a sign of fragility, you could fool me.
Pesky student: Now you are just contradicting yourself. If we are at full employment as you suggest, is this not the perfect time to reverse the current fiscal irresponsibility?
At that point, we and the governor decided to invite this pesky student to join us at the local pub. After all, drinking a few beers with her and chatting economics would provide us more understanding of economics than listening to Professor Nugent.