GOP and recession

Great Debates
1

Here is my theory- stock investors & other such folk like GOP fiscal policy for THEMSELVES, as it nearly always helps the rich with big tax cuts, etc. However, they realize that such “voodoo economics”, altho good for them, is bad for the economy. Thus, altho they cry out for Capital gains tax cuts, elimination of the “Death Tax”, etc- as soon as it looks like there is going to be a Prez that will actually DO all those things- they start dumping stock like it’s on fire.

Witness the “BOOM” started about the time Clinton was elected- but a bit before he actually took office. And this “Bust” started as soon as it looked 99%likely GWB was really going to win. Note, the “Boom” continued thru the Fed raising rates- but a cut in the Prime of 1/2 a %, which is pretty big, caused naught but a “hiccup” in the down-trend.

So?

2

I think you may be a bit confused here. Other things being equal Bush’s tax cut would stimulate the economy. Concerns with such policy would be these: [li]that it would create an unsustainable boom (where demand would outstrip productive capacity and trigger inflation)that unless commensurate expenditure cuts were made the US government debt would begin ballooning again.[/li]
This would be a fairly standard treatment of what happened with the Reagan supply-side tax cut (and the Volker reponse). Under this sort of thinking Bush (I) may not have had much an effective response to the troubles he inherited, but it really wasn’t his fault. By the same token, Clinton managed not to mess up the circumstances he inherited. The remarkable growth of the past decade has slowed, but I doubt that it has much to do with Bush (II).

In the event that he does implement his tax programme it may cause problems like those of the 80s, but it is hard to see the current rumblings as connected with the tax plan. It is more the fallout from the gradual deflation of the boom that we saw last year. I suppose to some degree Greenspan’s actions could be seen as preempting (and getting rid of the perception of a need for a stimulus the Bush tax cut may be clothed in if there is a recession) the cut, but more likely the Fed has seen a dramatic softening in various indicators over the last month or so and is trying to act before it is too late.

3

Man I can’t believe how misinformed you are.

If we were going to look at it like you want to, then there are some serious holes in your theory.

Let’s start with the economy under Carter Vs. Reagan.

Then let’s ask why the economy started turning around in '91 before people knew Clinton was going to win.

Then let’s wonder why the economy did not take it’s super charged expansion until the Repubicans took control of the House and Senate in '92.

Finally, let’s wonder why things started falling apart before Bush was officialy elected.

The truth is that the economy always undergoes cycles. In addition to the regular cycles, we just hit a golden time in history. The advent of the internet and it’s catching on will probably be compared to major times in history like the discovery of steam engines, electricity, phones and air travel.

People get all excited because something NEW is happening, and they lose all perspective on what a good investment is. The boom times we just saw were based on speculation. That is why Greenspan has been trying to softly pop the bubble and bring us in for a soft landing for a couple fo years now.

The bubble looks popped, hopefully the landing will turn out to be soft.
In truth, the president is only a very small part of a large and complicated equation. To try and credit one person with the success of the last 6 years, or blame an individual for a slow down, kind of misses the whole concept of capitalism.

4

When the boom began Clinton was third in the polls behind Perot and Bush. Also stocks have been going down due to recent earnings numbers released by major companies. These numbers reflect earnings for months ago when the election had not happened yet. Also it is not clear whether Bush will be able to pass his tax cuts through a divided congress. Also remember that the economy and the stock market are not the same things.

5

Economics, as applied especially to the stock market,is half algebra, the other half voodoo. Nobody knows what the best medicine is to apply, because no one knows precisely what is wrong.

“Landslide” George and company was just recently spouting “Hey! Things are great, boom boom boom, we can afford a whopping big tax cut.”

Then the recent slide, surprise, surprise, “The economy is tanking! What we need is a whopping big tax cut!”

Da Rich support all manner of think tanks and academic studies with one end in mind: to provide the academic rationale to prove that whats good for them is good for the country. Hence supply side, trickle down, Laughable Curves, the whole mishigass and magilla.

If the Greedy Old Plutocrats could come up with a rationale such that it is God’s Will that the rich get richer, etc., one that they can state on CNN with a straight face, Phil Gramms would be intoning chapter and verse with a Bible in hand faster than you can say Alan Greenspam.

6

wasn’t there a whole lotta rumbling from the Reps from mid Nov - mid Dec about how the drop in the stock market was due to the ‘uncertainty of the presidential race’?

7

Freedom- get a chart of the Dow. You’ll see it take an upsturn right after Clintom was elected, then another sharper upturn after he had been in office for a couple of years. Then, right after the election in November, when it was pretty clear that Gore had only an outside chance- it began to tank.

Now, it is very true that the best increase was while Clinton was Prez & the GOP ran Congress. My best guess is that what make the economy run best- is leaving it the f*ck alone. Neither the GOP or Clinton could make any radical changes- so the economy ran best. True, the Prez is most responsible for “fine-tuning” the economy, thru the FED, etc, but Congress plays a part almost as big. In the last six years- nobody was able to do anything very radical- just about every change had to be agreeable to both parties.

picmr- yes, IN THEORY, tax cuts CAN stimulate the economy. But, it seems clear that the investors think that Bushs planned cuts, and other policies- will be bad for the economy in the long run. For example- how exactly, will getting rid of the Estate Tax help the economy? Since it will allow huge piles of money to stagnate in the same hands , generation after generation- it will do the opposite.

8

Hmm, that’s not the way I (or my profolio) remember it - and I, too, was a Gore voter. As I recall on a day-by-day basis, every day that it looked like it was all over (and Bush was the winner) the market would rise - and every day that it looked like things were going to drag on for awhile, the market tanked.

The market hates uncertainty more than it hates anything else - and not knowing how the presidential race is going to turn out is uncertainty at its worst.

9

Ninety-two, Freedom?
Are you sure?

10

Make that “my portfolio”. And I previewed the ^*#!! post, too. Sheesh.

11

Daniel, how is this clear? Which investors are you referring to? If you’re simply referring to the current state of the market, you’ll have to show why this is a reaction to planned cuts, as opposed being related to worries over corporate earnings or whatever. You’re begging the question, it would appear.

12

It just FEEEEEEELLLLSSSSS like I have suffered for ten long years:)

I didn’t know you were a technical trader. Even the die hard technical traders only look at the chart patterns without trying to project reason onto them. I wish I knew the name of the fallacy you are pushing here, but you are assuming cause and effect when it has not been established.

I am sure many things happened in '92, '94 and 1999 that different people could attribute the same effect to. The reality is that the economy is not that simple. If you want to get more specific, then look at the minute by minute charts of the DOW and Nasdaq during the election.

When a court decision would come out for Bush, the market would spike for an hour or two, right of nowhere. When Gore would announce he was stating in, the market would plunge. I watched it happen several times as it was actually happening.

Just answer me one question please…

How do you think the internet and technology fit into the boom of the last 6 years?

Please. Investors are mostly the top half of the wage earners in this country. They would love a tax cut to have more money to invest with. They would also love for 2% of SS to be diverted into the market so that there will be a greater demand for stock.(prices go UP :))

13

Well I’m new here (see post count)

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but i do know a fair amount about economics;). And I would like to start by asking who exactly told you that the DOW or the NASDAQ was a good or acurate measure of economic performance? You do realize the market is fickle, and responds to many things, not just economic conditions. Second, I would like to make sure we are clear on the definition of recession. Now I have noticed in the past when people are rattling off how Bush is gonna cause a recession and I make sure they actually understand the definintion of a recession before doing anything else, most debate over the impending “recession” soon fades away. Now everyone here realizes that the US economy has been growing at more than 5% annually and sometimes even greater. We also all realize the the accepted and “ideal” growth rate is around 2%. Furthermore, we all realize that this 5% growth rate was precisely the reason Mr. Greenspan proceeded with the last 6 rate hikes to slow the economy. Ok since we all have that clear, what exactly is the problem? The economy is slowing down right? Well what do you think those 6 rate hikes were intended to do? Encourage growth:confused:? Well our ol boy Alan over hiked the interest rate, now the economy is tanking a little faster and a little more severly than we would have liked. However, you must remember there is nothing fundementally wrong with it, the slow down is artifical, and purposely induced. Thus, reversing it should not be difficult. The Bush’s tax cut WILL (as opposed to CAN) stimulate the ecomomy. And btw tax cuts have nothing to do with helping the rich, its just a tool used to “adjust” the economy as needed. Yes, the Bush tax cut will crowd out investment and raise interest rates, I don’t deny that. However, if Mr. Greenspan (well not really him alone, but since that is the common conception I suppose I can play along :)) lowers the interest rate by enough to offset the expected increase in the interest rate from the Bush tax cut, we can get the ecomomy back to a reasonably strong equilibrium where inflation is still held in check.

Voodoo economics? I don’t know but it seems that the web is overflowing with voodoo economists :slight_smile: Believe it or not, economics is not like religion. If you pray for a new porsche (well assuming you believe in god and so forth) you might just get it (doubtful). So in that respect praying for a new porsche may CAN get you one. However, cutting taxes is not like this. One cannot say the economy MAY or COULD be stimulated, but rather it must be!!! Cutting taxes increases disposable income, and thus people will either consume more or save more out of that higher disposable income. Now lets assume they spend it, well to consume something it must be produced right? Well if you consume more, more is produced, if more is produced income (GDP) rises (since income=output). NOw lets take the other course. Lets assume they save all the new found disposable income. Well now what happens? Well through the mechanism proposed by Mr. Keynes we still get a higher GDP. Why? Because an increase in the supply of loanable funds causes the interest rate to fall. As interest rate falls, more risky projects become feasible, and more marginal capital investments by firms become feasible. Well then firms invest in new means of production and we have an investment driven stimulus. So you see, tax cut → GDP increase all else equal :).

My point of all this? Give the man a break!!! He hasn’t even taken office yet and we are talking recession.

Oh btw did I define recession? I think I forgot b:( OK to have a recession we need negative grow (some fraction of a percent I can’t remember exactly at the moment). Therefore, those who scream recession when there is a relative decline in the economy are mistaken. This is not a recession, a slow down yes, but a recession No. Bush is very unlikely to actually see a recession in the next 4 years. A slow down, yes, but a full-fledged recession is highly unlikely.

14

A recession is defined as two consecutive quarters of negative growth. Any old negative number is fine.

15

WillGolfForFood: Love that name.

RD: a fair amount about economics? And you didn’t even know the basic definition of a recession? I was following along nicely until then, then BOOM! Define fair amount, if you can.

Still, you made some decent points. To throw my two cents in:
I was always of the opinion that the Clinton tax rise was extremely well timed, in that it introduced a fiscal brake just at the moment the economy was beginning to take off, and delayed the take off for a year or two.
I am also of the opinion - much as I hate to say this - that the Bush tax cut, should it be passed, will introduce some needed fiscal stimulus at just the right time. Every time I look at the outstanding debt figures these days, I note that the debt - all of it, not just the publicly held portion of it - has finally begun to decline (ever so slightly). This is good, but it also means that the Federal government is withdrawing funds, net, from the economy. This has to be counterbalanced, and the classic Keynesian formula for this is a tax cut.
Besides, if the Democrats are smart, they can always negotiate for something they want, like an increase in the minimum wage. Just the thing to make Greenspan totally apoplectic.

16

btw by fair amount, I mean BA in econ in 3 months, but starting graduate classes in econ in two weeks (if you must know). I prefered not to try to give an exact but inaccurate number, but rather the general idea, that going from 6% growth to even as low as zero growth is not a recession. I’m lazy, not stupid, I didn’t want to look it up, and I couldn’t remember the exact number (I believe it is .2% negative growth, but I’m not sure on that so I prefered not to give it, but to the best of my knowledge this is what is considered a recession). Btw there is a generally accepted percentage of negative growth that is required to be considered a recession, I’m not sure about the 2 consecutive quarters rule, but it sounds a little familiar (not sure though, I may stand corrected it may actually require a negative growth of .2% for 2 consecutive quarter, that does indeed sound somewhat familiar, but I’m not sure). In any event, what I hear from most people refered to as a recession just is not by definition a recession, or remotely close to one, thus I feel compelled to clarify that from time to time;).

17

If Bush is good for them, but bad in general, why are they selling? Why do they care about the economy “in general”? If Bush cuts taxes too much, there will be inflation. Whom does inflation help? It helps holders of capital. In other words, people with lots of stock. Who does it hurt? It hurts people who have given up capital, in other words: people with large bank accounts, people who own a lot of bonds, and holders of currency (holding money is essentially the same as loaning money to the government interest free). So if your theory is correct, we should see large bank withdrawls and loans taken out to buy stock. Furthermore, bond prices should fall. The fact that the stock market is doing poorly hurts your theory.

18

Why MUST an irratic and irrational stock market be contributed to Bush? I don’t know about you, but I about sht myself when I saw the insane movents in my stocks following execptionally strong numbers and performance in both the 2nd and 3rd quarter. WTF? Where have you guys been for the past 9 months? It all got insane in April and hasn’t really let up since. Now since Bush is about to be our new president, ITS HIS FAULT? Come on now. The market has not been reacting in a rational manner for some time now, so why should we expect it to all of sudden get its sht together so we can blame Bush.

Actually, do a little reseach and you will see that the street wanted Bush in the White house and grid lock in the house and senate (It got exactly what it wanted). Everybody is jumping the gun here, things don’t just go back to normal overnight. Its gonna take a while for wallstreet to get its confidence back. That could take some time. Remember, the market is about perception, and confidence rather than the actual state of the economy.

NOw don’t get me wrong he’s an idiot, a bigger idiot than I ever thought (I voted for him too:(). Now I thought there was a spin campaign trying to make him look stupid, but in retrospect I’m beginning to think just the opposite occured. The spin campaign was to play down his true stupidity (I hope I’m wrong).
My thought is this if you wanna get into off the wall theories and so forth. The Bush people want the tax cut. Most of these people are extremely wealthy, thus have some ability to influence the market. Ok now if you want the tax cut, which could amount to a whole hell of a lot of $$$s for Dubyas favorite 1%, you do everything in you power to prove you need the tax cut. An organized sell off could depress the market, get rates cut, make it easy to pass the tax cut, and make those involved a bundle considering they sell at the top, and they know where the bottom is. NOw obviously this is kind of a conspiracy theory, but not entirely impossible. Hell I’d do it if I had the cash:D.

Now remember I said this was an off the wall conspiracy theory, not what i think is really going on, but I suppose it is possible.
The Ryan,

one note, inflation helps those who are in debt (generally poorer people) while it hurts the wealthy (holders of notes many of which are at a fixed rate).

19

RD, I learned more in these posts of yours than I did in 2 semesters of Econ.

20
  1. yes, it is true- some of the 'down days" on the market were caused by uncertainty- but the “down days” have continued.

2.True- “Recession” is a technical economic term- and, right now we do not look to be headed for THAT sort of 'recession". What many are conderned with is a large slowdown in Growth, and a downturn in the Market. And- that is what we are going to have- or so i predict.

  1. Ahh, the old “decrease taxes HAS to help the economy” theory. Wrongo. Investors can also spend or invest the money overseas- which helps not the US economy, or they can simply stuff it under the mattress. The Reagan tax cuts did little for the economy.

RD- Since the GOP controls the Senate, House, SCOTUS & POTUS- where is the “Gridlock”? Oh, btw- welcome.

Bob- who KNOWS what the market downturn is caused by? I don’t. But- the big gain was during the Clinton admin. The downturn started as soon as Bush wasa the winner. I suppose it COULD be co-incidence. But I do not think so. I’m going to predict the Market continues a downturn. Perhaps the downturn is NOT “rational”, like RD says. But I still say the downturn is caused by worries about Bush- perhap not rational worries- but worries all the same.