OK, so my posts usually all that cerebral (i think thats how its spelled), but at least i try. Who knows, maybe this one will be better. I hear alot about Bush and the economy, often many opposing veiws, but i know very little about this subject and would like to learn more. So i thought, what better place to start than with the guys and gals at the SDMB. So here’s your chance to educate me. What, if anything, could Bush do to stimulate the economy? Im of the impression that there isnt much he could do. I mean dont get me wrong, i cant stand the guy, i just havent heard a compelling argument. So wont womeone please save me before i turn from a mild libertarian to a gasp, pubbie?
Given your political beliefs, you would enjoy either of these books:
Basic Economics by Thomas Sowell
http://www.amazon.com/exec/obidos/ASIN/046508138X/qid=1036720363/sr=2-2/ref=sr_2_2/103-0381742-9721440
Hands Off: Why the Government Is a Menace to Economic Health by Susan Lee http://www.amazon.com/exec/obidos/ASIN/0684814420/cyberhaven00/103-0381742-9721440
Presumably a cut in the marginal tax rates would be good for the economy. Making the tax cut permanent would encourage investment and business expansion. An urgent need is to rein in tort liability lawsuits. Reducing regulation would be helpful.
Other good books on economics that the conservatives won’t tell you about 
:
“Economic Explained” by Robert Heilbroner and Lester Thurow (sort of like Sowell’s book, i.e., a general introduction to economics, but from a somewhat left-of-center rather than right-of-center point of view).
“The Winner-Take-All Society” by Robert Frank and Philip Cook. This book is more speculative, but tries to explain the growing income inequality. One of its conclusions is that the traditional tradeoff that was always believed to hold between equality and efficiency may not hold…I.e., we may be living in a society where we can adopt policies that not only decrease inequality but also actually increase the efficiency of our economy.
As for the real question of the OP on stimulating the economy…There is some demand-side stimulating effect of tax cuts if the tax cuts go to those who will tend to spend it for goods and services (i.e., those who are not so well off and thus spend most of their income). [Although this is by no means completely obvious because you really have to consider how the government would spend it otherwise. Deficit spending is also considered to be stimulating…at least to the point where it doesn’t raise interest rates so much that it crowds out other investment.]
Whether one can stimulate the economy by giving tax cuts to people who will tend to save or invest it (i.e., the wealthy folk) is much more controversial. [At least once you again consider other alternatives of what to do with the money.] Certainly the extent to which this works was (at best!!!) greatly overstated in the Reagan era which is why we ended up with huge budget deficits, rather than realizing the projected government revenues from taxes that assumed that the tax rate cuts would fuel rapid economic expansion.
One thing maybe both sides can agree on is that there is a limit to just how much stimulus a government can create.
The United States has a Gross Domestic Product (GDP) of over 10 trillion dollars a year.
Bush’s tax cut that everyone is screaming about is about 1.35 trillion over TEN years. If it were evenly spread out over the ten years (it’s not - it’s ‘back loaded’ meaning most of the effect comes later), then the total cut in taxes per year would be a little over 1% of GDP.
But even that effect is over-stated, because if the government didn’t cut taxes, it would spend the money. Those of us who believe in small government would argue that government spending money generally has less of a wealth-creation effect than if you left it in the hands of private individuals.
So let’s say for the sake of argument that a 1.35 trillion dollar tax cut will mean that the economy will grow 600 billion more in GDP over that period than if the government spent the money.
In that case, the tax cut’s stimulative effect would amount to about .5% of annual GDP. The economy usually grows between 2 and 5% (it will probably grow between 3-5% next year).
So the Bush tax cut might make the difference between a 3.5% and a 4% growth rate. Whoop-de-doo.
So Democrats are wrong when they claim that the tax cut will be horribly destructive, and Republicans are wrong in saying that it will be hugely beneficial. It will have a modest, long-term effect one way or the other.
Why do politicians run around talking like they control the economy? Well, because they’re politicians. No one’s going to elect someone who says he can’t do anything about your problems. So Republicans and Democrats both inflate the perception of their ability to make a difference.
This is not to say that government is irrelvant. The government’s budget is almost 1/5 of GDP, so that’s a huge thing. And then the cost of regulation is also huge (or, if you’re a liberal, the cost of market failures due to the government’s inability to act).
But most of the government’s budget is fixed, and Republicans and Democrats only play around on the margins. Of that 2 trillion dollar government budget, maybe 10% of it at most will change due to the political party in power. The rest is earmarked for the Military, entitlements (Social Security, Medicare, etc), or tied up in programs that enjoy wide bipartisan support (farm subsidies, for example).
Government can make big changes in the long-term, by adopting policies that create environments suitable to their goals. Democrats would argue that their support for education and social equality will lead to a country that runs smoother and better. Republicans would argue that their cuts in taxes and government regulation will create an environment favorable to business, which will allow them to create even more wealth, which makes everyone wealthier.
And remember that the economy is only one thing that matters when choosing your government. Both parties seek to restrict your freedom in diffferent ways, and enhance it in others.
There. I hope that’s reasonably balanced and non-partisan.
Who are you and what have you done to Sam Stone.
Kudos to you, Sam Stone - another outstanding post.
Regards,
Shodan
Gee - the hamsters are smoking!
Some good books on the effects of taxation and the economy.
The Road to Serfdom by F.A. Hayek - Nobel prize winner in economics.
Money Mischief by Milton Friedman - Nobel prize winner in economics
The Wealth of Nations by Adam Smith - The granddaddy of them all on the capitalist system.
For Good and Evil: A history of taxation by Charles Adams - Very good book, very interesting.