Bushonomics 101
Economics is a confusing subject, but that doesn't stop untrained people from not only expressing opinions on economic matters, but sometimes deciding their votes based on the supposed economic performance of an incumbent national leader.
Talk to someone considering voting for Bush and they'll say things like the following:
- Bush's tax cuts helped stimulate the economy and get it moving again after the Clinton recession.
- Bush's policies are aimed at ordinary working families, and tax cuts are just the government returning money to the people who earned it in the first place.
- The government may be in debt, but that's true of lots of governments. Maybe it would be good to get spending under control, but there's nothing unusual about a government being in debt.
Let's take stock, shall we?
1. THE TAX CUTS
The tax cuts have been shown to be heavily skewed to wealthier Americans. You can read the CBO's analysis here (PDF).
So what, eh? They earn the most, they pay the most, they should get the most back, right?
Well, let's put aside the issue of fairness, which is a good bit more complicated than that. Let's look at the issue of the effect such tax cuts would have. The cuts are meant (presumably) to help stimulate an economy where the Federal Reserve has run out of room. So how good are such skewed tax cuts at doing this?
Noted economist Brad DeLong says not very -- the tax cuts were badly designed if what you wanted was a short-term boost to the economy.
Why did he [Bush] not set in motion in late 2002 a real and effective employment stimulus package? Instead, he chose a "Jobs and Growth" plan that got us much less employment bang for added deficit buck than it should have, all the while pretending that a cut in taxes on dividends was a cost-effective short-run employment-generating fiscal stimulus.
The problem is, it's the poorer and middle-class workers who will spend a greater share of any tax cuts -- they have a higher marginal propensity to consume. But most of the money returned via the tax cuts has not gone to those who would be most inclined to spend it. (These in fact are not "tax cuts" but tax shifts -- more on this below.)
Hence, the impact on spending, business activity and, finally, jobs, has been muted.
2. JOBS
Job growth in the US has not been impressive lately. The reasons are arguably complicated, as these things usually are, but as we've seen, the Bush Administration took a fairly strange action when the problem first surfaced.
The stranger thing is that the administration wants to keep trying to claim credit when things look like they might be going OK. Let's see what The Economist magazine has to say about this.
NO PRESIDENT wants to hear that the economy has stopped producing new jobs three months before election-day. But for George Bush the news that only 32,000 new jobs were created in July is doubly troubling. This paltry number makes it almost certain that he will be the first president since Herbert Hoover to face the electorate with an economy that has fewer jobs than when he took office ... What makes this all the more embarrassing, however, is that the White House has lately gone out of its way to claim responsibility for the short-term performance of the jobs market.
After enduring months of a jobless recovery, George Bush's team was quick to claim credit earlier this year when the pace of job growth finally accelerated. John Snow, the Treasury Secretary, argued that the creation of over 300,000 new jobs in March clearly demonstrated that Mr Bush's tax cuts were working. These tax cuts, he suggested, were driving job creation. The administration did not simply claim that the huge fiscal expansion of the past three years had helped cushion America's recession (which would have been correct). It went much further. Tax cuts, intoned every Bush official, were the elixir behind the jobs recovery.
Now that the payroll figures have weakened, the Bush team is squirming. White House aides offer a slew of reasons why the statistics which just a few months ago clearly demonstrated the wisdom of Mr Bush's economic policies should now be discounted. The president himself pretends the bad news simply does not exist. We have a strong economy and it's getting stronger, he claimed only hours after the jobless figures were released on August 6th.
Let's hear that again, shall we? The president himself pretends the bad news simply does not exist. Does this sound like the president? Well, yeah, it sounds eerily familiar really.
In summary: Jobs are down, but when they didn't seem so down, that was a sign of the president's effective economic policy. Now they're seriously slow, well, the president just pretends life is rosy, and an enormous amount of people go along with him, hoping he's right.
But one area where Bush has excelled is in accruing public debt.
3. THE DEBT LEGACY
Did you know that the Administration is requesting the government's debt ceiling be raised? I'm not sure how aware people were of that.
Now, what tends not to get understood about the Bush "tax cuts" is that they are not cuts as such, they are SHIFTS of the tax burden. In particular they lower tax burdens on current wealthy Americans and raise tax burdens on ordinary middle Americans in the future. Hence, they have shifted the tax burden into the future, and across earning classes. This is NOT a tax cut, it's a redistribution -- a tax shift.
But the odd thing is, no-one grasps the magnitude of the debt imposition that this imposes on the government, and hence on future taxpayers. It's not getting talked about much in the lead-up to the election. It's the story that gets overlooked.
As DeLong notes:
All cover the story that Douglas Holtz-Eakin's CBO says that yes, the Bush "tax cuts" were tilted toward the rich. But nobody talks about the elephant in the living room--that the deficits produced by these tax cuts are raising the national debt, that the national debt has to be serviced (unless we want to see the economy collapse into hyperinflation), and that the burden of servicing the national debt will raise taxes in the future.
Nobody talks about this stuff because it's complicated, and worse, it's too scary to contemplate.
Boston University economist Larry Kotlikoff talks about America's menu of pain here (PDF file) -- the grim choices it will face to pay off its current spending binge. Or you can read his book on the coming generational storm that has been greatly exacerbated by the current government.
This is Bushonomics 101 going into the election. The final exam is in November. Students in Florida who didn't receive the proper marks based on work submitted last time, well, let's hope we do our tabulation of results better this time.
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