First, I’d like to assure everyone this isn’t a homework question.
I’m taking college courses at night and this summers course was Macroeconomics. I just finished the chapter on fiscal policy. In passing, the chapter mentions that the Bush administration predicted a recession around 2001 and this is why he instated the Bush tax cuts and increased spending. The idea being, that lower taxes and more spending would spur the economy and avoid the recession.
I have always wondered why Bush would simultaneously lower taxes and increase spending. It seems like such a dumb move on the surface and I thought he was just helping his buddies get richer. But the chapter explained that it is a common method to smooth out the “contracting phase” of the business cycle.
I’m guessing Bush didn’t foresee the two decade long wars we were going to fight at the same time, and this combined with his fiscal policy greatly increased the debt.
What do you guys think about his decisions? Obviously he is mostly viewed in a negative light on this board (rightly so). How bad do you guys think the recession would have gotten without his policies? Going by only the info he had available at the time, do you think it was the right move?
I’m inclined to say it was a mistake, but this summer is my first exposure to formal economics, so what do I know? At least now, I believe there was method to the madness and the move was in good faith.
I really wish the chapter went into more detail on this, but it focused more on the 2008 recession and recovery.
He is unlikely to have cared about any recession; he never showed any interest in the welfare of the country. And cutting taxes on the rich lets even more wealth concentrate in their hands and hurts the economy, it doesn’t help it.
On the contrary, cutting taxes while raising spending in order to run up the debt has been a Republican strategy for a long time. They think they can cripple the government by starving it of funds while increasing the debt; “Starving the Beast” they call it.
The government policies of anti-government people are by nature going to be designed to fail, not succeed.
Much more should have been spent in stimulus, and taxes should have been raised on the rich, not lowered. And there should have been a huge regulatory crackdown and prosecutions where possible.
So a potential recession didn’t really factor into it and Bush likely would have done the same things either way?
That’s pretty much what I was wondering. If it was a partisan decision or a legit economic decision.
It just seems so crazy to FINALLY have a budget surplus and then flush it down the drain. Speaking of the surplus, was that simply a result of being on the upside of the business cycle or did the Clinton or Bush I administrations proactively implement so e successful policies?
Sorry if this topic wanders around, but I really enjoyed that macro class and it made me curious about a lot of issues I lived through it didn’t really understand (I’m 28).
I know it may be a niche subject, but does anyone know any good books that focus on the economy from around Carter or Reagan to the present, that isn’t a text book
Yep. He was determined to run every play in Ronald Reagan’s playbook – despite the fact that the game had changed. Reagan cut taxes? He was going to cut taxes double!
His administration was purely ideology-driven, without any concern for facts. His anti-science policies were only one dead giveaway.
One point of view is that the Bush tax cuts, being skewed toward the higher brackets, may have had a contributory effect toward the 2008 recession. The thinking is that when money flows out of M1, into the M3 cloud, it tends to get trapped there. Financiers then have more breathing room to do their shuck-and-jive shell games with their various instruments, developing the kind of complex securitizations that drove the collapses. This sort of severe capital distribution imbalance leads to systemic instability, as genuine working capital is neglected in favor of what amounts to the red and blue table-chips.
That, of course, is the left-wing perspective, typically originating from individuals who do not have degrees in economics (except maybe Krugman). The right-wing view is that it was mostly because of lazy and irresponsible home buyers who tried to bite off more than they could chew. And, obviously, the GSEs.
Do you mean more money is deposited into investment banks like Lehman Brothers and less goes into normal banks by the middle class? Then the investment banks over extended themselves because they are not required to keep a certain percentage of funds in reserve, like a normal bank is required to do.
If that’s the case, then my textbook gave both of those reasons you just cited.
How can you have “surplus revenues” when there is a crushing debt that is growing daily, and whose debt service costs are eating up a larger and larger proportion of government revenues?
Mind you, Bush did say “After paying the bills, my plan reduces the national debt, and fast,” Mr. Bush said. “So fast, in fact, that economists worry that we’re going to run out of debt to retire.”
Ah, those Job Creators™ again! Sadly, it turns out that corporations hire more people only when there is increased demand for their product, and not because they got a tax cut. If they have higher profits due to tax cuts, it turns out they have no trouble figuring out what to do with the money that doesn’t involve hiring unneeded labor. In fact there have been a number of incidents where companies took huge tax cuts and then shut down entire divisions or manufacturing operations and laid off all the workers.
As for personal tax cuts, it turns out that the rich already have all the discretionary income they need. This is pretty much what we mean by “rich”. Unlike the poor and middle class, giving billionaires tax cuts has little to no impact on either their discretionary spending or on the economy. Yet for some strange reason these billionaires seem to get these tax cuts anyway. I wonder if it has anything to do with the fact that they own politicians, own the media, and own the political process.
Those are the obvious, proximate reasons. But are they causally linked to the Bush tax cuts? At what threshold do upper-marginal tax cuts drive large amounts of capital out of M1
My interpretation of that is that it’s the same thing I was just saying. In essence the major difference between the M1 and M3 money supply is that M3 adds some categories of “useless” money, basically things like money market funds that just sit there instead of being infused into the economy and driving demand. Which is just what the wealthy tend to do with their tax cuts.
In reality, what Bush did in the wake of the dot-com bubble is little different from what Obama did in the wake of the 2008 financial crash. What history shows in the comparison is the ideological divide between conservative and liberal economics. Bush lowered taxes, keeping more money in the economy, in an attempt to stimulate consumer spending. Obama gave out money in specific arenas, a la the stimulus, in an attempt to keep the economy afloat.
These are simply two sides of the Keynesian coin: both result in the accumulation of debt. Did Bush come into office intending to cut taxes outside of an economic imperative toward stability? Probably. Did Obama come into office wanting to spend lots of borrowed money? Probably. So, conveniently enough, ideology met reality for both individuals, to the long-term detriment of the country.
That’s a great point. If I’m understanding you correctly, (and I may not be), you are saying the same problems with investment banks over extending themselves and massive mortgage defaults would have happened with or without the Bush tax cuts?
