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Economics According to John and Tony Snow – Ice Cream as Medicine

Listening to the White House babble about fiscal policy and economic growth, I’m reminded of an incident where my scientist wife told me I was like a small child when it came to visiting doctors and taking medicine. You see, I hate going to the doctor’s office even when I’m quite ill as I was a few months back. And I’d much rather eat ice cream than take medicine. So I really wanted to go to the store and purchase some French vanilla ice cream to ease the pain – to which the wife said “only if you go to the doctor’s office first”. Fine, I went to see the doctor, stopped by the grocery store, purchased a pint of French vanilla ice cream, ate it, and within a couple of days, I was much better. So do we have scientific proof that Dreyer’s French vanilla ice cream cures the flu or whatever I had? After all, the doctor never told me to do anything. But he wouldn’t as he knows to call the wife, which he did – to which he said my ailment was going to cure itself without medicine.

So I’m reading some story about our Treas. Sec. who said: “I am confident we will continue to see good progress on the deficit. It is clear now that the president’s objective of cutting the deficit in half will be met and exceeded ahead of schedule … What the president’s leadership of the economy has demonstrated is that low tax rates create investment, create jobs, create growth; and now with the surge of revenues we are seeing as a result we can also say that low taxes are consistent with rising federal revenues which of course help bring the deficit down”.

And apparently, Nobel Prize winning Tony Snow told Katie Couric that tax revenues are ahead of projections proving that the 2003 tax cut caused rapid economic growth. And yes, Dreyer’s French vanilla ice cream was the only reason I’m not still in bed with that flu.

If anyone had asked me during early 2003 whether the economy would recover from the anemic economic performance of the past couple of years, I would have said yes even if I thought that 2003 tax cut proposal would fail. In fact, I thought some of the economic forecasts back then were too conservative given the size of the GDP gap. So MY forecast for GDP growth and tax revenue growth would have been higher than many of those forecasts. Now if someone had said to me – what if they do pass the 2003 tax cut. My forecast for growth would have been increased only marginally so my forecast for tax revenue growth would have been lowered.

Now if you asked my doctor similar questions – he would have told you that I would have recovered from my flu just as fast without the ice cream and my waistline would currently be a little bit smaller. But what do doctors know? Time to go buy a whole gallon of Dreyer’s French vanilla ice cream!

Update: Our friend Calculated Risk provides this link to the latest Snow Job from the Sec. of the Treasury. Alas, reporter Jeannine Aversa does precious little to rebut the free lunch garbage from this White House:

Snow credited the president’s tax cuts with helping to boost overall economic activity and thus tax receipts as well. Democrats contend that the tax cuts plunged the government’s balance sheets into red ink and ended four years of budget surpluses from 1998 though 2001. The administration has blamed mostly higher spending to fight the wars in Iraq and Afghanistan and spending to combat terrorism within the United States for the budget deficits.

Someone ring Dean Baker and Brad DeLong!

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Inflation Fears

This morning’s release by the BLS of the April Consumer Price Index has put a small scare into the financial markets. The inflation data showed prices rising surprisingly rapidly, both for energy goods (which was not a surprise), but also for things other than energy.

The annualized inflation rate faced by consumers for all goods other than food and energy (the core rate) over the past six months (November-April) was about 2.8%, which is the highest reading for that inflation measure in five years. The following chart illustrates.

A slightly different measure of inflation that, like the core measure, also tries to smooth out the volatile ups and downs of the overall CPI, is the median CPI inflation rate. Including today’s new data, the median CPI has risen by 2.8% over the past year.

Thus the underlying rate of inflation in the US economy right now clearly seems to be trending higher in recent months, and is now pushing 3%. This is almost certainly higher than the Fed would like it to be, so today’s data substantially increases the likelihood that the Fed will continue raising interest rates further to try to slow down the economy a bit.

What makes this much worse (from the Fed’s point of view) is the decided upward trend in inflation that today’s report seems to be confirming. Stopping this upward trend before it goes any further will be a top priority for the Fed over the next few months. (One should note at this point that one could very reasonably argue that the Fed actually has very little control over what happens to inflation over the next few months, since monetary policy tends to operate with a substantial lag, but that’s a discussion for another day.)

Participants in the stock and bond markets have reacted strongly to this line of reasoning.

Interest rates have been bid up substantially in the bond markets today, with the 10-year US government bond yield rising from about 5.11% early this morning to 5.17% in the first hour after the release of this report. The following chart shows the yield on the ten-year bond over the past two days.

Naturally, the prospect of the Fed trying to cool the economy with further interest rate increases is not welcome news to the owners of US corporations. That’s why the stock markets have reacted rather negatively – the Dow and S&P500 are both down about 1.5%-2% as of 2pm.

It’s amazing what one little report about inflation during just one month can do, isn’t it?

Kash

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Helen Thomas v. Tony Snow – and a Rovian “Rabbi”

Does Jonah Goldberg get anything right?

But emailers are telling me that Tony Snow walloped Helen Thomas in the WH briefing.

In case you are wondering if Mr. Snow punched Helen Thomas or beat her in a good old fashion bout of mud wrestling, let me assure you that Jonah’s fantasies went unanswered. Ms. Thomas was simply asking about the wire tapping controversy:

Q The President today denied he’d ever broken the law in terms of wiretaps. He also indicated that anything that was looked into, any calls, had some sort of foreign aspect either to or from. And he has said he’s always obeyed the law. Are all of these stories untrue that we’ve been reading for the last several days that millions of Americans have been wiretapped?
MR. SNOW: Well, let’s
Q Are the phone calls turned over to the government?
MR. SNOW: Okay, let’s try to segregate the stories here. What he’s said about the terror surveillance program is that these are foreign-to-domestic calls and they were all done within the parameters of the law. He has not commented on the
Q He, himself, has said he didn’t obey that law.
MR. SNOW: No, he didn’t. What he said is that he has done everything within the confines of the law. The second thing is, you’re mentioning a USA Today story about which this administration has no comment. But I would direct you back to the USA Today story itself, and if you analyze what that story said, what did it say? It said there is no wiretapping of individual calls, there is no personal information that is being relayed. There is no name, there is no address, there is no consequence of the calls, there’s no description of who the party on the other end is.
Q Privacy was breached by turning over their phone numbers.
MR. SNOW: Well, again, you are jumping to conclusions about a program, the existence of which we will neither confirm, nor deny.
Q Why? Don’t you think the American people have a right to know
MR. SNOW: Because — what’s interesting is, there seems to be a notion that because the President has talked a little bit about one surveillance program and one matter of intelligence gathering, that somehow we have to tell the entire world we have to make intelligence gathering transparent. Let me remind you, it’s a war on terror, and there are people — I guarantee you, al Qaeda does not believe —
Q He doesn’t have a right to break the law, does he?
MR. SNOW: No, the President is not talking about breaking the law. But al Qaeda doesn’t believe in transparency. What al Qaeda believes in is mayhem, and the President has a constitutional obligation and a heartfelt determination to make sure we fight it.
Q to obey the Constitution
MR. SNOW: Absolutely right.
Q the Fourth Amendment
MR. SNOW: Absolutely right, and he believes in obeying it.
Martha.
Q You might repeat the same thing, but why not declassify this? I mean, the President did talk about the surveillance program a day after The New York Times broke that story. This would seem to affect far more people, and it did sound like the President was confirming that story today. He was answering Terry’s question —
MR. SNOW: Well, if you go back – if you go back and you look through what he said, there was a reference to foreign-to-domestic calls. I am not going to stand up here and presume to declassify any kind of program. That is a decision the President has to make. I can’t confirm or deny it. The President was not confirming or denying.
Again, I would take you back to the USA Today story, simply to give you a little context. Look at the poll that appeared the following day. While there was –part of it said 51 percent of the American people opposed, if you look at when people said, if there is a roster of phone numbers, do you feel comfortable that – I’m paraphrasing and I apologize – but something like 64 percent of the polling was not troubled by it. Having said that, I don’t want to hug the tar baby of trying to comment on the program – the alleged program – the existence of which I can neither confirm nor deny.
Q But there are polls that show Americans are very concerned about it.
MR. SNOW: The President – you cannot run a security – you cannot base national security on poll numbers. As the President of the United States you have to make your own judgments about what is in the nation’s best interest.
Q You just brought it up, though.
MR. SNOW: Well, I did bring it up because what you were talking about is how people were concerned about privacy issues, and I tried to relate to you what happened. It was interesting, when people were given the specifics in that story, they did not seem to be terribly troubled.
Q We are now.

So Snow dodged Ms. Thomas’s questions and when she persisted, he falsely claims the American people don’t care citing polls number and then saying who cares about poll numbers as he plays the national security card. That’s right – we have to violate the Fourth Amendment and spy on Aunt Bee – or else Al Qaeda has won.

I’m sorry Jonah – but Tony Snow showed himself to be as much of a weasel as Scott McClellan.

Speaking of National Security, the rightwingers over at Human Events have joined with Rabbi Ayerh Spero:

Every time the Democrats “expose” how the administration is fighting the war on terror, Republicans become defensive and hide for cover as if we are doing something wrong. Instead, let the President or the Speaker or Senate Majority Leader offer the following proposition: No more intercepting calls from Al Qaeda. No more detention of captured terrorist suspects. No more detention camps … Let’s point at the Democrats, while the American people are listening, and say: OK, we’ll do it your way. Safety is secondary to whatever Human Rights Watch and the ACLU demand.

Before you decide to fire back that this “Rabbi” is a nut case, check out his energy proposal:

Drilling in Alaska is Biggest Religious Issue of our Time

We have an election coming up in November so expect a lot of this bashing of Democrats on these fake national security concerns.

Update: National Review’s Media Blog described Thomas v. Snow as:

Fact-checking Helen Thomas, who falsely alleged that “millions of Americans have been wiretapped.” Snow explained that the USA Today story said nothing about wiretapping, and explained further why he couldn’t comment on the program: “Let me remind you: It’s a war on terror… Al-Qaeda doesn’t believe in transparency.”

So a non-denial denial is considered fact checking? Interesting. Media Blog continues:

He got tripped up when he started talking about poll numbers. First he used poll numbers to support a point he was making, then he said the president can’t conduct national security based on poll numbers. Again, discounting for misleading poll questions, the poll numbers have indicated support for this idea. He should not have conceded that the program is unpopular.

Now that’s rich – if a poll does not support your spin – call its questions “misleading”.

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The Bush Economy by Karl Rove

While Mark Thoma has a few words about the partisan garbage Karl Rove delivered to the American Enterprise Institute, let me start here:

The economy itself began slowing in the third quarter of 2000 as GDP declined by an annual rate of 0.5 percent. And all of this took place before George W. Bush set foot in the Oval Office.

Rove fails to admit that during the fourth quarter of 2000, real GDP increased by an annual rate of 2.1% and that for the entire year, real GDP rose by 3.7% – which just happens to be the average rate of increase for the Clinton tenure in office. Compare that to the meager performance of real GDP during the 2001 to 2005 period. Employment growth – as measured by the payroll survey – was very strong during the Clinton years with employment continuing until March 2001. Employment growth since Bush took office has been pathetic. And before any of the household survey freaks jump in, let me remind them that the employment-population ratio (from the household survey) stood at 64.4% when Bush took office but was only 63% as of April 2006.

Rove describes Bush’s economic policies thusly:

And he believes that economic growth is created largely on the economy’s supply side. The best tax cuts create incentives for people to work and businesses to produce and companies to invest. President Bush doesn’t believe government creates wealth. He understands that’s done by American workers, farmers and entrepreneurs. His economic policies, then, are tied to a view of human beings that understands the role of incentives in shaping behavior. There are three important elements of these policies that I’d like to talk about today: the tax system, trade liberalization and budget discipline. The president believes when the economy falters, tax cuts will lead to economic prosperity. This reflects a deep faith in individual citizens; in their energy and common sense and capacity to make wise decisions. His view of free trade is grounded in the knowledge that American producers and workers can compete and win internationally as long as the rules are fair. And an emphasis on a responsible federal budget reflects the president’s belief that, while government should actively perform its core functions, it should not impede the efforts of individual citizens and enterprises to create jobs, wealth and economic opportunity. Let me deal briefly with each one of these three: taxes, trade and spending.

The premise that Bush has promoted a free trade agenda is a JOKE. So let’s turn to fiscal policy where Bush has pretended to give us our money back – but rather than cut government spending, he has allowed it to increase as a share of GDP. Of course, the Bush cheerleaders wish to tell you that despite the fact that national savings has declined since 2000, Bush’s economic policies have somehow led to more long-term growth. Of course, the facts don’t support this spin.

But Karl wants the Bush Administration to get credit for a wonderful labor market:

The American economy has created more jobs than all the countries in the Euro zone and Japan combined, and our economy is growing today faster than that of any major industrialized nation in the world. It grew at an annual rate of 4.8 percent in the first quarter. It added more than 5.2 million jobs in the last two and a half years. Employment is at near all-time high. Claims for unemployment insurance are at a five-year low. The unemployment rate is 4.7 percent; well below the average for each of the last three decades.

So I guess Karl’s fuzzy math says 63% is greater than 64.4%?!

Let’s face it – George W. Bush sent Karl Rove to the AEI to flat out lie. But then what’s new?

Update: David Altig does his best to defend Karl Rove’s speech.

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David Brooks Absolves Republicans from Deficit Blame

The latest op-ed from David Brooks is entitled From Freedom to Authority and includes this spin:

In the 1970’s and 80’s, conservatives felt the primary threat was the overweening nanny state. Ronald Reagan tried to loosen the structures that restricted individual initiative and led to national sclerosis. He and Margaret Thatcher deregulated, privatized, cut tax rates in order to liberate entrepreneurs. The dominant formula was simple: less government equals more freedom. “Government is the problem,” Reagan declared, expressing the organizing conservative principle of the day. Times change. Now the chief problem is not sclerosis but disorder. The biggest threats come not from nanny states but from failed states and rogue states. There is less popular fear of bureaucrats possessing too much control than of ungoverned forces surging out of control: immigration, the federal debt, Iraqi sectarianism, Islamic radicalism, Chinese mercantilism, domestic rage and polarization.

Brad Setser quips:

Not quite sure the federal debt is an “ungoverned force”

Neither am I. I guess Mr. Brooks is too young to realize (or is it too dishonest to admit) that President Reagan’s tax cuts did not reduce the size of the government but did increase the Federal debt massively. George W. Bush CHOOSE to follow Reagan’s lead into a policy that would eventually lead to Federal bankruptcy if no future political leader had the courage to change course. We know President Clinton did have the courage to govern. Maybe what Mr. Brooks meant is that this current crop of Republican politicians fails to possess any governing force in the sense of being leaders with the courage to tell voters the truth. If so, I would hope Mr. Brooks cease making excuses for them and demands those that do.

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Voodoo Economics: Reich v. Kudlow – Advice from a Bigoted Bear

Mark Thoma points to a couple of pieces from Robert Reich, which I want to discuss in a bit. Mark leads with some nonsense from R. Emmett Tyrrell Jr.:

There is a bigotry against the term Supply-Side Economics. That is the only way to explain it. The prejudices of those who for decades have believed what is best for society is a government that taxed and spent restrain them from reviewing the mounting evidence to the contrary. Prejudice and bigotry are not all that unusual in the human condition.

Let me suggest that my fellow ‘bigot’ – Sebastian Mallaby – is not prejudiced at all. We just recognize BS when we see it. I don’t believe in the tooth fairy either so does that make me a homophobe?

Mr. Tyrrell’s playing of the race card does not excuse the stupidity of those who pretend there is a free lunch as in the following garbage from John McIntyre:

The Return of Voodoo Economics makes one wonder about what he doesn’t like about 4% growth, under 5% unemployment, housing and the stock market higher, wealth being created and tax revenues at all time highs. I guess he pines for the pre-Voodoo Economics days of the 1970’s when the highest marginal tax rate was 70% and the country had anemic growth, high unemployment and a Dow languishing below 1,000. What gives Mallaby the right to think that he is a “serious” person when it comes to economic policy, but President Bush, Vice President Cheney, Majority Leader Frist and Finance Chairmen Grassley are not? Is Mallaby really that arrogant? Did it ever occur to Sebastian that maybe he is letting his ideological views get in the way of an honest appraisal of the facts? Why is it so hard to explain the concept to many “intellectuals” that the idea is to grow the pie as big as possible, and that taking a smaller percentage of a bigger pie can yield more than a higher percentage of a smaller pie? Mallaby can quote all the economists and studies he wants to justify his attack on the economic wisdom of lower tax rates. I’ll just look at what happens in the real world.

As McIntyre advocates an “honest appraisal of the facts” – maybe he should recognize that the government slice of the pie (government purchases relative to GDP) did not fall during President Reagan’ tenure as President and has actually increased a bit under President George W. Bush. Maybe he should also recognized that the increase in consumption after the 1981 and 2001 tax cuts led to less national savings. Real GDP growth during the Reagan-Bush41 era was only 3.0% and will likely be less than 3% during the first decade of the 21st century. So when he claims that growth has increased as a result of the tax cuts – he has his facts wrong.

But look – beating up on these free lunch supply-side midgets is all too easy even if there seems to be an endless supply of such ill informed rightwingers. My main complaint is with my fellow liberal Robert Reich as he takes on well known supply-side liar Lawrence Kudlow:

Larry is a card-carrying unrepentant supply-sider who still believes low taxes lead to faster economic growth, which trickles down to everyone. Unfortunately for Larry, supply-side economics is one of those rare economic theories to have been tried in practice (the Reagan administration was the last full-fledged experiment) and failed miserably. By the end of the Reagan years, the federal budget deficit had ballooned and the only thing that trickled down was debt. The first George Bush was forced, finally, to raise taxes (despite what people may have read on his lips) because the bond markets were in full-scale revolt.

What missing here folks? Or here:

I’d appreciate it if someone could explain to me why we need another tax cut for high-income Americans especially when the gap between the rich and poor, and between every rung on the income ladder, is wider than it’s been in almost a century. Some administration apologists, including the editorial page of the Wall Street Journal, claim repeatedly that the rich are paying a larger-than-ever share of income taxes, so it’s entirely fitting that they get the lion’s share of any tax cut.

Don’t get me wrong – Robert Reich does this debate a great service when he talks about income distribution even if we can hear Robert Novak screaming something about CLASS WARFARE in the background. But he almost concedes Kudlow’s usual argument about faster growth by default even if we know Kudlow is dead wrong. Let me share my initial reaction to the two pieces by Reich that Mark Thoma linked to:

I like Reich – but let’s be honest. He’s not all that effective in debating this issue. All one needs to do to undermine the Kudlow et al. faster growth argument is to quote a Kudlow statistics – the US economy’s average annual growth rate from 1947 to 2000 has been 3.5%. But let’s break this down:
1947-1980 (high tax rates): 3.5%
1981-1992 (low tax rates): 3.0%
1993-2000 (high tax rates): 3.7%
Now taking the OMB projections for the rest of this decade, we project the following:
2001-2010 (low tax rates): 2.9%

I know – nothing original nor really all that complicated. But we have been witnessing a flood of free lunch garbage of late – all wrapped in a slew of distortions that Kudlow and his fellow clowns are infamous for bringing to any discussion.

As my initials indicate – I am a ProGrowth Liberal so if there is some means for increasing growth without the adverse distributional consequences that Robert Reich is rightfully concerned with, GREAT. Kudlow and his clowns want you to believe it is as easy as cutting taxes never reminding folks that unless we cut government spending somewhere, the reduction in national savings will mean less growth, which is the point noted here. Conservative economists, which excludes Kudlow and his clowns, can put forth their pro-growth small government proposals with a straight face as incentives do matter as long as we actually take the steps to insure fiscal neutrality.

But conservative politicians such as George W. Bush and Newt Gingrich don’t wish to engage liberals like Robert Reich in a debate over real choices. So they send out their fake economists, which includes Kudlow and his clowns, to lie to the public. My advice to Robert Reich and others is to start the debate with a few simple facts – that being that growth slowed down during the Reagan-Bush41 low tax era, was faster during the Clinton high tax era, and slowed down again during the Bush43 era.

When dealing with Kudlow and his clowns – the old adage applies: Keep It Simple, Stupid. Matthew Yglesias and Kevin Drum show us how.

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Dynamic Scoring: Brad DeLong HAS read Greg Mankiw and Matthew Weinzierl

Last Thursday, we suggested that Greg Kaza more carefully read the paper by Greg Mankiw and Matthew Weinzierl that Kaza used as evidence for supply-side economics. We are happy to report that Brad DeLong has read this paper and notes:

The abstract is misleading. It should read, “The feedback is surprisingly large: in the long run, provided spending is cut to keep the government budget in balance, for standard parameter values, half of a capital tax cut is self-financing.” In Mankiw-Weinzerl’s model, you have to cut spending by almost all of the static revenue loss in the short run, and by half of the static revenue loss in the long run. That’s not Bush tax policy. Bush tax policy is to cut taxes and boost spending. “[H]alf of a capital tax cut is self-financing” implies that Mankiw-Weinzerl’s results are relevant to the capital tax cut bill moving through the system right now.

Brad also asks us to read Eric M. Leeper and Shu-Chun Susan Yang:

Neoclassical growth models predict positive growth effects over the entire transition path following a reduction in capital or labor tax rates when lump-sum taxes (or transfers) are used to balance the government budget. This paper considers the consequences of bond-financed tax reductions that bring forth adjustments in expected future government consumption, capital tax rates, or labor tax rates. Through the resulting intertemporal distortions, current tax cuts can lower growth. The paper shows that the stronger the response of distorting fiscal policies to debt, the more favorable the growth effects of a tax cut.

Had President Bush decided to actually reduce government spending as he pretended to “give us our money back”, the recent supply-side chanting could rely upon the Mankiw-Weinzierl model to suggest that higher savings would eventually lead to significant output gains. The problem, however, is that the current crop of supply-siders are very much like the supply-siders during Reagan’s term in that they pretend there are free lunches. As in the 1980’s, the tax cuts have LOWERED national savings.

Update: Karl Rove gave a “Policy Address” at the American Economic Institute and JPod provides a partial transcript:

And we’re going to be fine because we stand for things that are important. We stand for strong natural defense abroad and complete victory in the war on terrorism which involves victory in Iraq. “We stand for a strong national defense. We stand for economic policies that are pro-growth, involving tax cuts and free trade. We are strongly for fiscal restraint in the budget process. “And our opponents, at this point, stand for little or nothing, except mere obstructionism.

Natural defense abroad? Excuse me Karl – but we Democrats stand for a strong national defense and the protection of our environment at home. But OK, he misspoke. George Bush is neither for fiscal restraint nor free trade judging from his first five years in office – so stop pretending.

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Herbert Stein v. John Tamny on Oil Prices and Monetary Policy

John Tamny starts his latest op-ed with some wisdom from Herbert Stein:

Seeking to shift blame away from the Federal Reserve and the Nixon White House for the oil shocks of the early 1970s, the late Herbert Stein said, “My devotion to the old-time religion is not so great as to make me believe that M1 or the full-employment budget deficit determines the amount of rainfall in the Russian wheat lands, the location of Peruvian anchovies or the decisions of the oil cartel.”

I wish he would have skipped the “seeking to shift blame away from the Federal Reserve and the Nixon White House for the oil shocks of the early 1970s” nonsense AS WELL AS THE REST OF THIS OP-ED. As usual Tamny confuses nominal prices with relative prices. The variability of the relative price of oil prices has little to do with U.S. monetary policy. Herbert Stein understood this simple point – but also John Tamny does not.

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Gingrich Wants Bipartisan Dialogue

On Meet the Press, Gingrich said Republicans and Democrats need to have a bipartisan dialogue but he also said:

if you represent a party whose contract is with San Francisco and Vermont, you can hardly explain what your future is. I mean, Congresswoman Pelosi cannot explain what her speakership would be because it would be so far to the left they would guarantee the Republicans re-election. So I was saying partly they can’t possibly put together a contract with America because Howard Dean and Nancy Pelosi and, and, and their allies are so far to the left. They can’t be clear what they would do—raise taxes, create more big bureaucracy, have a much weaker system of defending America … The country would love for Republicans to be solid on this, the country does not want to go back to a left-wing Democratic majority

We love you too, Newt.

Roger Ailes catches Newt’s bloviation, which included a defense of the warrantless wiretapping program as being totally legal. Newt suggested he was never unfair to Speaker Jim Wright as Newt denied that he personally ever had ethical lapses. And listening to his neocon nonsense, I suspect this post applied to Newt as well. But the real howlers came when Newt talked about fiscal policy and economics.

He wanted to claim that the deficit fell during the 1990’s mainly because his leadership reduced domestic spending dramatically. Never mind the fact that only defense spending fell as a share of GDP in any appreciable way. Newt even tried to suggest that the “starve the beast” hypothesis works.

Newt failed to mention the increase in taxes as a share of GDP was the main reason for the improvement in the fiscal situation during Clinton’s tenure as all Newt wanted to do is to take credit for the first tax cut in 17 years.

Newt wanted to make those bogus free lunch supply side claims that the Reagan and Bush tax cuts led to more growth – not less. I guess he could not admit that the 1990’s boom followed the 1993 tax increase – the one he opposed and the real reason that the deficit fell. As Sebastian Mallaby suggests – we are witnessing the Return of Voodoo Economics.

I would love to see an honest, bipartisan dialogue of the policy issues. But please don’t invite serial liars like Newt Gingrich – especially if their favorite stooge (Tim Russert) moderates.

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George W. Bush = LBJ on Fiscal Policy

Deroy Murdock of the National Review gets something right!

On spending, LBJ’s Great Society seems greater than ever. Washington Republicans’ Spend-O-Rama famously included 13,997 pork-barrel projects that lodged like baby-back ribs in last year’s appropriations bills. President Bush’s $92.2 billion request for Iraq War and Hurricane Katrina funding has expanded to $109 billion after Senate manhandling. It now features such germane adornments as $6 million for Hawaiian sugar growers and $1.1 billion for private fisheries. Another $700 million would redirect train tracks that CSX Corp. invested $250 million to rebuild after Katrina; a replacement roadway then would link condos to Mississippi casinos.

Check out Murdock’s graph showing Federal spending as a share of GDP from 1993 to today, which shows this ratio declining throughout the Clinton years but rising ever since.

Under LBJ, we saw the 1964 tax cut, an increase in entitlement spending, and increased defense spending for the Vietnam War. Under George W. Bush, we’ve had tax cuts, the prescription drug benefit, and yes, the Iraq War. There may be one BIG difference, however. As early as December 1965, the LBJ Council of Economic Advisors (you know – those KEYNESIANS) were warning the President that fiscal policy had become too stimulative and that unless he either cut spending or raised taxes, the FED would either have to increase interest rates (which they did for a while in 1966) or watch inflation accelerate.

I would hope Bush’s CEA is telling him the exact same time. I would hope the CEA is saying words like “crowding-out” like the LBJ CEA were doing some 40 years ago. LBJ did not like the message but he went to Wilbur Mills and suggested a tax increase. But some supply-side goofball named Norman Ture told the Chairman of the House Ways and Means Committee back in 1966 that LBJ’s economists had no clue. But we know these Keynesian economists were right.

The difference between 1966 and 2006 is this – the supply-side goofball this time around happens to be the President. Thank goodness, the FED is not buying the free lunch garbage of those who worship Norman Ture. Alas, the interest rates will cause crowding-out of investment and less long-term growth. I just hope Mr. Murdock can get this message to those supply-side goofballs at the National Review.

Update: While I’m praising NRO stuff, let me say yes sort of to what Ramesh Ponnuru said on the progressivity debate:

The income tax has gotten more progressive, but not necessarily the “tax system” generally. Since income taxes are more progressive than payroll taxes, cutting income taxes but not payroll taxes makes the system as a whole less progressive. This observation is usually made by people who aren’t really interested in lightening the load of the payroll tax, but it’s still true.

The partial yes is that Ramesh is trying to inject the total tax bite. But Ramesh – if the Federal government cut payroll taxes but not Social Security benefits but rather used income taxes to help fund the Trust Fund – I bet a lot of liberals would love that proposal. Oh wait – your crowd wants to cut benefits but keep payroll taxes high in order to bail out the General Fund mess created by the 2001 and 2003 tax cuts.

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