Paul Krugman asks reporters to examine what each of the main Presidential candidates propose to do about what appears to be a weakening economy. It should not be any surprise that he does not have kind things to say about the nonsense coming from the GOP debates but he does have a few good things to say about two of the three leading Democrats. But it was this that caught my attention:
The Obama campaign’s initial response to the latest wave of bad economic news was, I’m sorry to say, disreputable: Mr. Obama’s top economic adviser claimed that the long-term tax-cut plan the candidate announced months ago is just what we need to keep the slump from “morphing into a drastic decline in consumer spending.” Hmm: claiming that the candidate is all-seeing, and that a tax cut originally proposed for other reasons is also a recession-fighting measure – doesn’t that sound familiar?
If not, read this and let’s discuss:
Bush and Cheney have said that the tax cut was perfectly timed to help the economy return to growth after three straight quarters of contraction in 2001. In fact, Bush has asked for the tax cut, which expires in 10 years, to be made permanent to fuel future economic growth. But Democrats and other critics have noted that the tax cut, which in part benefited higher-income taxpayers, helped wipe out a federal budget surplus carefully crafted during the Clinton administration, possibly threatening the economy’s future health. “It was a very difficult and very important achievement to get a balanced budget and a budget surplus, which Clinton did,” said Roger Altman, a deputy treasury secretary under Clinton and founder of Evercore Partners in Washington. “In the blink of an eye, that fiscal discipline – which in turn permitted monetary policy to be stimulative and gave confidence to investors and businesses, and had a role in the economic performance of the United States in the late 1990s – has been dropped.” “The prospect of a $165 billion budget deficit is a very negative development that is undermining business and investor confidence,” Altman added. Other critics are alarmed by the Bush administration’s apparent refusal to bend from certain pet ideas – the tax cut was presented in 1999 as the only logical response to the boom and was re-packaged in 2001 as the only logical response to the doldrums. “They came in a year and a half ago with a set of preconceived notions, and nothing, no event, no conceivable event, seems to get them to modify any aspect of that,” said William Gale, senior fellow for economic studies at the Brookings Institution.
Lawrence Lindsey once told Tim Russert that the “economics profession” had declared his 1999 tax cut proposal to be one that we perfectly timed. It would seem that it was Dr. Lindsey who made this claim so I guess he considers himself to be the entire profession. But it is true that he and George W. Bush designed their set of back-loaded giveaways for the rich during a period when the economy was booming. If Dr. Lindsey was forecasting the 2001 recession two years in advance, maybe he should have published his most insightful forecast. As far as how this was designed, it certainly failed the targeted and temporary principles that we have recently heard much about.
For Senator Obama to be playing this supposed omniscient game with a tax cut that was not perfectly designed to combat a recession strikes me as rather bad politics if one wishes to capture the Democratic nomination. After all – we should leave the praising of past GOP Administrations to those clowns who think the road map to the White House starts at the alter of Saint Ronald.