Can someone explain George.W. Bush’s economic policy to a layman?My knowledge of economics is only up to high school level so try and simplify it. I would also be very interested in what you think of it
He has one?
OK, seriously, he appears to be playing the straight ‘Lower the tax burden and people will spend more thereby increasing economic activity’ game. The juries out on whether it will work.
Yes, increased economic activity is good. But it’s by no means certain that would occur. Given the level of consumer debt I find it likely that increased take-home pay would lead to consumers paying down existing debt rather than making new purchases.
Also, Bush has me wary with the way he fudges some numbers. When he says ‘The average family will save $1000 per year with this tax cut’ he’s technically right…as an average. But it’s really more like one person saves $9991 dollars and 9 people save $1 (numbers horrendously exagerrated and not intended to be actual). The average remains $1000 but most people won’t see it.
One thing that has puzzled me is the administrations emphasis on spending. Time was the barometer of economic health was the savings rate. People would save money and then the large savings institutions would invest that money at interest into mortgages and stocks and whatnot. Simple enough.
But lately the administration has been pushing these tax ‘givebacks’ to increase spending. It seems that they want the average consumer to consume and not conserve. That strikes me as antithetical to long term stability.
So there does seem to be a plan, but I’m not sure that A) it’s a good one and B) he actually means what he says.
If you want to see a real-world example of Bush’s economic “plan”, come visit us in Texas. He ran the same cut-taxes-to-increase-spending game when he was governor. We are now into our second legislature since his leaving (and the first one elected since his leaving.) {The Texas legislature meets for 140 days every two years. It’s not an ongoing thing, like Congress and some other states.}
Our state has a $9.9 billion short-fall over the next biennium. In other words, Gov. Bush projected a rosier economy than what actually happened. He cut taxes based on optimistic projections showing high consumer activity (most of Texas’ income is from sales tax – no income tax. Schools are funded mostly by local property taxes. Cities, counties and transit authorities, among others, are funded by sales taxes and some property taxes.) When spending slowed, sales taxes plummeted. Therefore, Texas did not receive the income required to support current services and the Bush tax cuts.
The result has been massive layoffs at all levels of state government. There are cuts everywhere, with thousands of people losing their jobs. Those that still have jobs know that they can be cut at any moment. State support of school districts is likely to be cut drastically (the legislature is still in session, so nothing is final.). Prisons are down to security only – no rehabilitition services at all. (Remember, most prisoners serve their time and are released.) Social services, including health care for children, are being cut past the bone. Mental health care (to prevent some of those prisoners) is being cut drastically (even though it’s never been properly funded, anyway).
The legislature (and our moronic current Governor) have pledged not to raise taxes, no matter what damage they do. Schools and cities are being forced to raise taxes instead, if they can.
I gotta run, but there’s so much more. Bush, and his followers, have left an incredible mess in Texas.
Jonathan Chance summed it up exactly. Cut taxes, in hopes that we’ll spend (or invest) the money, spurring economic growth, preferably enough growth to cover the cuts in the tax rate, but he’ll run deficits till the cows come home if he has to. Federal spending will be cut some too, but only by modest amounts as compared with the tax cuts. Incidentally, economists call this “fiscal policy.”
The Federal Reserve, chaired by Alan Greenspan, controls “monetary policy”, or what the government does about the money supply. The policy here (undoubtedly endorsed by the Bush Administration) is to keep interest rates low. This discourages saving, and tries to encourage more spending. This is because if you save your money, you get a lower interest rate, but if you take out a fixed interest rate loan and spend money, you only have to pay back a lower interest rate.
If I could throw in a bit of cynicism, I think Bush’s economic policy, like nearly all politicians’, is only one means to the end of his “getting re-elected policy.” Actual economic growth isn’t nearly as important as being viewed favorably come election time, and as long as people think he’s making all of the right moves he’s happy. It doesn’t hurt that he can pin today’s climate on the last guy, but of course that excuse will only last so long.