Thursday, August 13, 2009

Misplacing My Rage

Today Bruce Bartlett at the Daily Beast pens a column about how all of us out here that are upset about the immense government expansion taking place before our eyes are blaming the wrong person, by taking it out on President Obama. Who are we to blame? Well, President Bush, of course! Now, let me say that from a purely economic standpoint, yes, Bruce Bartlett is correct, and he does a great job of explaining himself.

Conservatives delude themselves that the Bush tax cuts worked and that the best medicine for America’s economic woes is more tax cuts; at a minimum, any tax increase would be economic poison. They forget that Ronald Reagan worked hard to pass one of the largest tax increases in American history in September 1982, the Tax Equity and Fiscal Responsibility Act, even though the nation was still in a recession that didn’t end until November of that year. Indeed, one could easily argue that the enactment of that legislation was a critical prerequisite to recovery because it led to a decline in interest rates. The same could be said of Clinton’s 1993 tax increase, which many conservatives predicted would cause a recession but led to one of the biggest economic booms in history.

According to the CBO, federal taxes will amount to just 15.5 percent of GDP this year. That’s 2.2 percent of GDP less than last year, 3.3 percent less than in 2007, and 1.8 percent less than the lowest percentage recorded during the Reagan years. If conservatives really believe their own rhetoric, they should be congratulating Obama for being one of the greatest tax cutters in history.

Conservatives will respond that some tax cuts are good while others are not. Determining which is which is based on something called supply-side economics. Because I was among those who developed it, I think I can speak authoritatively on the subject. According to the supply-side view, temporary tax cuts and tax credits are economically valueless. Only permanent cuts in marginal tax rates will significantly raise growth.

On this basis, we see that Bush’s tax cuts were pretty much the opposite of what supply-side economics would recommend. The vast bulk of his tax cuts involved tax rebates—which failed in 2001 and again in 2008, because the vast bulk of the money was saved—or tax credits that had no incentive effects. While marginal rates were cut slightly—the top rate fell from 39.6 percent to 35 percent—it was phased in slowly and never made permanent. Neither were Bush’s cuts in capital gains and dividend taxes.

I could go on to discuss other Bush mistakes that had negative economic consequences, such as the Sarbanes-Oxley Act, which imposed a massive regulatory burden on corporations without doing anything to prevent corporate misconduct, and starting unnecessary wars in Iraq and Afghanistan, which will burden the economy for decades to come in the form of veterans’ benefits.

It is very important for Conservatives, Libertarians and, yes, the GOP, to understand and accept this argument. It's the same argument I posted about earlier as to Peter Schiff's appearance on Fast Money the other day. Poor decisions were made, on top of poor monetary policy, and everything went to hell. We all need to recognize that this is what happened. Just as the Fed propping up the market right now cannot be sustained, neither could have the "good" effects of Bush's tax cuts then have been sustained, particularly as they were largely rebates, as Bartlett discusses.

Where Bartlett's article goes wrong, however, is in its actual point. Bartlett is trying to say that everything that is going wrong right now is the after-effects of the wrong-headed economic policy that the Federal Reserve implemented under President Bush. And he argues that since the President appoints the board of the Federal Reserve, it's on Bush. So we should be mad at Bush, not mad at Obama.

The problem with Bartlett's argument is that he has completely ignored every single step the Obama administration has taken since January. For instance, you cannot deride the Bush tax cuts for being non-stimulative since they were rebates, and then in the same breath try to tell me that Obama is simply trying to clean up the mess by doing the exact same thing in the "stimulus," which was laden with "cuts" that were cuts in rhetoric only, and which were ALL rebates, and not possibly stimulative in any way. You cannot argue that the actions of the Federal Reserve, and the Fed's ties to the presidency, are the problem, and completely ignore the fact that Obama wants to expand the role of the Federal Reserve, making it yet more dangerous.

In a display of Monday Morning Quarterbacking that Peter King himself would be envious of, Bartlett even goes on to blame Bush for never undertaking reform of healthcare.

But there is yet another dimension to Bush’s failures—the things he didn’t do. In this category I would put a health-care overhaul. Budget experts have known for years that Medicare was on an unsustainable financial path. It is impossible to pay all the benefits that have been promised because spending has been rising faster than GDP.

In 2003, the Bush administration repeatedly lied about the cost of the drug benefit to get it passed, and Bush himself heavily pressured reluctant conservatives to vote for the program.

Because reforming Medicare is an important part of getting health costs under control generally, Bush could have used the opportunity to develop a comprehensive health-reform plan. By not doing so, he left his party with nothing to offer as an alternative to the Obama plan. Instead, Republicans have opposed Obama's initiative while proposing nothing themselves.

So the economy sucks now because Bush never reformed Medicare? OK I'll bite on that. But don't tell me that I should be happy now that Obama is pushing a healthcare reform bill that, in case you haven't been paying attention, doesn't fix Medicare! In fact, largely undiscussed is the idea that what this current healthcare bill does do, is to take the private sector of healthcare insurance, which is functioning profitably, and roll it into a social security and medicare type of package. Those two packages, coincidentally, are rotting like dead fish on the side of the road at this point.

The economy stands as it will, at times alongside, at times astride, at other times even subject to the world of politics and government. What remains consistent however, is that the economy will behave in a manner largely dictated by our central bank's monetary policies. This is the case no matter which party is in office. But we must remember that two wrongs do not make a right. Bush did wrong, and Obama is continuing to do wrong, and to do worse. Because we should be mad at Bush for what he did or did not do in the past, does not mean we shouldn't be mad at what we're watching our government continue to do wrong.

President Bush is no longer in office. President Obama is. It is only practical that we voice our opinions to those who can do something about it. My rage, and the rage of all those like mine, is simply against the machine. When the engine breaks down, I care not who the conductor is. I care only that he is able to make the necessary repairs. And I'm sure as hell going to let him know about it when he's slicing off fan belts when the problem is the oil, even if the oil should have been changed by the last guy.

1 comment:

  1. Where is the trigger? FNMA, FMAC? Giving loans to people that couldn't afford them? Who promoted this policy?