Why is the Economy in Trouble? Seriously, Why is the Economy in Trouble?
Just out of curiosity – why is the President considering more economic stimulus at this point? Let me rephrase the question… why is the economy in a state where even rational people are talking about the need for stimulus only a few years after we’ve had large individual income tax cuts, big cuts on taxes on repatriated corporate income, and continued year after year tax cuts on the estate tax. And let’s not forget that the Fed has bent over backward to help GW. Take a look at real interest rates since GW took office – has any president gotten anything even remotely resembling this sort of help since stagflation was vanquished?
So in plain English, we’ve had a heck of a lot of what we’re told is fiscal stimulus and a heck of a lot of monetary stimulus since GW took office. Off the top of my head, the only administration with any comparable combination of tax cutting and help from the Fed was the JFK/LBJ administration… but JFK/LBJ produced the fastest growth rates of any administration since FDR left office, with an annualized growth rate in real GDP per capita which last time I checked in the middle of last year more than twice that of GW. Sure, there were some good quarters last year, but nothing is going to make up that difference in performance.
And yet there’s still trouble. This administration (and its cheerleaders) have been wrong about everything they’ve told us about the economy. They promised rapid growth and to pay down the debt. In 2007, the surplus was going to be so big that there wouldn’t be enough retiring bonds to pay off. By 2010, debt was to be 6.5% of GDP. That was their first economic plan.
A recession came – they blamed it on Clinton and 9/11 and pushed through tax cuts, and more tax cuts. It was a light recession… short and shallow. But apparently enough so that debt would grow rather than shrink, despite all the help from the Fed. And for some reason, growth was anemic. So they pushed more tax cuts. And growth was still anemic. Eventually, in mid – 2003, the economy started to pick up again. There was much trumpeting of horns and pontificating and gloating. We’ve had average real growth for a few years plus a big run-up in the debt, and now we’re back to worrying about a downturn again? Now? So soon after their wonderful remedy produced what Kudlow called the Goldilocks economy?
Which raises a question… what are they going to blame it on now? Clinton has been out of office too long, its been more than six years since 9/11, Congress has given them just about everything they wanted, and the Fed could not be more cooperative. (In fact, anyone could see the Fed helped so much for so long, it created its own problem… which is where we are at this point.) So what is left? Why the very short, very sub-par expansion? If its not Clinton, and not 9/11, and not the Fed, and not some big problem from abroad, then what? Random chance? For no particular reason, this happened now? Or is it their economy, their policies?
My guess is that they’ll find some other reason, something other than their own actions and remedies and prescriptions. Because as far as GW and his cheerleaders are concerned, this situation gives them an excuse to peddle some more of their failed remedies and inane prescriptions. After what we’ve seen since January of 2001, a decent man would not go before the American public with a smirk on his face and tell us we need more tax cuts. But GW will. And decent people would not see the smirk and hear the call for more of the same and support it. But the cheerleaders will.
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Update… the question came up in comments… why the difference in performance between JFK/LBJ and GW if there are similarities. First, the similarities aren’t quite that high… JFK/LBJ didn’t have anywhere near as much help from the Fed as GW has, and despite their cuts in tax rates, both JFK and LBJ increased tax collections as a percentage of income. Needless to say, GW did some very, very different.
Which leads to these basic differences:
1. Cutting tax rates has very different effects when tax rates are high than when they are low.
2. My guess is that the tax rate cuts under JFK/LBJ didn’t benefit one small segment of taxpayers as disproportionately as GW’s tax rate cuts have done.
3. JFK/LBJ continued to pay down the debt. Needless to say, GW has done the opposite.
4. JFK/LBJ’s social policies were designed to broaden the economy by making even the poorest members of society more of a part of it.
5. JFK/LBJ ushered in the era of the technocrats. The eggheads descended on Washington and put a lot of time and effort into figuring out what to do. They weren’t always right. And they included folks who were from the other side of the aisle – C. Douglas Dillon, Secretary of the Treasury from 1961 to 1965, was a Republican. I don’t have to mention how this differs from GW’s administration.