Economists Polled About Bush Policies

[sam h]

The Economist recently conducted a survey of academic economists and produced some interesting findings about how people in the discipline are looking at various issues and candidate platforms.

Some interesting points:

Seven of ten rated Bush's first term economic policy as bad or very bad. About the same percentage also rated making the Bush tax cuts permanent bad or very bad. This is probably the issue that attracted the most criticism.

The economists generally thought that Kerry's policies were better vis-a-vis fiscal discipline and energy policy, but gave Bush an advantage on trade issues.

The respondents generally see the budget deficit and health care system as crucial issues, but dismiss outsourcing as a neglible problem.

This was taken from a random sample of referees from a leading journal in the field. Overall, the respondents seem to have fairly liberal politics, as 80% said that, were they to work in DC, they would prefer to work under a Kerry administration.



Link

[adios]

The just announced Nobel prize winner in economics on the Bush tax cuts.

Nobel laureate calls for steeper tax cuts in US

Nobel laureate calls for steeper tax cuts in US

Mon Oct 11, 5:21 PM ET Politics - AFP



WASHINGTON (AFP) - Edward Prescott, who picked up the Nobel Prize for Economics, said President George W. Bush (news - web sites)'s tax rate cuts were "pretty small" and should have been bigger.


"What Bush has done has been not very big, it's pretty small," Prescott told CNBC financial news television.


"Tax rates were not cut enough," he said.


Lower tax rates provided an incentive to work, Prescott said.


Prescott and Norwegian Finn Kydland won the 2004 Nobel Economics Prize for research into the forces behind business cycles.


The American analyst, who is a professor at Arizona State University and a researcher at the Federal Reserve (news - web sites) Bank of Minneapolis, said a large tax cut in 1986 had lowered rates while collecting the same revenue.


But "in the early '90s the economy was depressed by the tax increase in '93 by about four percent, and it's right at that level now," Prescott said.


Bush, who is fighting to get re-elected November 2, has cut taxes by about 1.7 trillion dollars during his term.


The US leader accuses his Democratic rival John Kerry (news - web sites) of favoring tax increases, despite Kerry's promise to cut taxes for everyone earning less than 200,000 dollars a year.


Former Federal Reserve Board Governor and well respected economist Wayne Angell blaming the most recent recession on the Clinton administration efforts to pay down the Federal debt.

COMMENTARY

The Rubin Recession

By WAYNE ANGELL
March 25, 2004; Page A16

Robert Rubin will never admit it, but the recession that began in the third quarter of 2000 was the direct result of the Clinton administration's attempt to pay down the federal debt. The Clintonites did this, you'll remember, by leaving tax rates high enough from 1995 to 2000 so as to direct a larger and larger share of the surge in growth of personal income to be paid in federal taxes. In the four quarters from the second quarter of 1999 to the second quarter of 2000 individual income tax receipts of the federal government increased by 11.4% -- exactly twice the 5.7% growth rate of personal income.

Most of our post-World War II recessions were the result of monetary expansion leading to an increase in inflation which gave the Federal Reserve little choice -- tighten money sufficiently to restrain the growth of the debt/credit expansion. Typically, the Fed encountered difficulty restraining credit growth without producing a recession. Though some would suggest the FOMC was six months too late in easing monetary restraint in January 2001, there's little doubt that the monetary ease fueled a 2001-2002 increase in household debt countering the GDP slowdown to 2.4% in 2001. In the four quarters to the end of the years 2000, 2001 and 2002 household debt growth increased at annual rates of 8.3%, 9.1%, and 10%.

Most economists would prefer to see corporate and other business debt grow more while household and government debt grew less. Few are willing to recognize that when household and government debt grows too slowly then growth in business debt abruptly slows as businesses have no need to borrow to finance an increase in employment and output. That is exactly what happened to the growth of business debt in 1999 and 2000 as a 12.2% growth of business debt in 1998 slowed in the next four years to 11.2%, 9.5%, 6% and 2.8%.

The motives to pay down the federal debt were laudable -- first, to increase national saving by reducing federal debt; second, to reduce the so-called use of Social Security excess of receipts over outlays to fund federal government spending -- and naïve. Naïve as hardly anyone seemed to realize that increasing national saving in the federal sector would reduce national saving in the household and business sectors.

The "pay down the federal debt" advocates, led by Mr. Rubin, apparently did not understand in 1996 and do not understand in 2004 the first principal of macroeconomics -- output growth is not sustainable without a growth of total credit and debt. If federal debt grows more slowly than total debt then household and business debt must compensate by accelerating their growth rate above the desired rate of output growth. If federal debt is to be paid down the necessary increase in household debt would sooner or later increase household debt as a share of GDP to levels that would not be conducive to a continuation of the growth of household spending on goods and services. Whenever financing household debt becomes too burdensome to sustain household spending then a reduction in the rate of household spending would be followed by a plunge in the rate of increase in business debt.

From 1998 to 2002 the growth rate of business debt slowed from 12.2% to 2.8%. Only by monetary policy actions which both succeeded in lowering interest rates on home mortgages and sustaining the rise in home prices could household debt accelerate from 8.2% in 1998 to 10.0% growth in 2002. However the increase in household debt to 85.6% of GDP has handicapped the rate of output and employment growth in 2003 and 2004. And this household debt burden continues to require both low interest rates and rising household wealth from real estate and the stock market to avoid deflationary pressures.

The recent peak in federal debt as a percentage of GDP averaging 49% from 1993 to 1996, compared with the all-time peak in 1946 of 109%, was rapidly reduced by an annual pay-down of the debt of 1.4%, 1.9% and 8% successively in 1998, 1999, and 2000. Unfortunately, the rapid pay-down of the debt slowed the growth of GDP from 6.2% in 1998 to 2.9% in 2001. Any serious economist knows such a slowdown in growth of GDP would result in a slowing of tax receipts whether tax rates were reduced, remained the same, or even increased. But, especially if tax receipts were stock-market boosted by a surge in taxation of retirement income and capital gains, then tax receipts would fall with the decline in the economy and the decline in stock prices.

By paying the federal debt down by 12 percentage points from 46% of GDP in 1997 to 34% in 2001 it was necessary that monetary policy accommodate an increase in household debt by 19 percentage points from 67% in 1997 to 86% in 2003. Our household sector is saddled by a 28 percentage point increase in the household debt-to-GDP ratio to 86% as compared to a 34-year average of 58%. Does it make sense for politicians to say we must not leave this federal debt to our children and grandchildren when in fact it is only a question of whether the debt is federal, household, or business debt? Ironically the attempt to "pay down the federal debt," seems to have coincided with a 37 percentage point increase in non-federal debt and a 38 percentage point increase in total non-financial debt to 204% of GDP.

For the sake of my children and grandchildren I hope for a less hysterical view of debt -- an understanding that high debt levels compared to the ability to service the debt is a disadvantage to households as well as to governments. I favor policies that lead to rising levels of income and well being with the realization that if debt burdens are too high they may well spawn desirable changes toward more thrift. The mantra of paying down the national debt has necessitated a reduction in interest rates that could eventually be accompanied by a too-casual approach to debt -- low interest rates make debt appear to be less burdensome. And that is a worry.

What worries me more is the rate of growth of government spending. Government spending tends to crowd out private spending whether it is financed by taxes or by borrowing. Federal debt does not crowd out private sector investment spending through any channel than higher interest rates. The concern for now is that interest rates are likely to remain too low to motivate more thrifty responses. If, in the future, total debt increases result in interest rates that are higher than necessary to motivate saving and to discourage private sector borrowing, then those higher rates would surely crowd out federal spending as well as private spending. The only crowding out is from the size and rate of increase in federal spending -- it is spending that diverts labor and capital away from private capital goods production, not the increase in debt.

Only hysteria, an outburst of emotion and fear, could produce the irrational response of the Congress and the public to the supposed danger of federal debt left to our children and grandchildren. Save your outbursts for reining in the growth rate of government spending. Then we will be able to keep tax rates conducive to faster increases in output and thereby add to both the well-being of our people and to future tax receipts available to the Congress.

Mr. Angell, member of the Federal Reserve Board of Governors from 1986 to 1994, is a former Bear Stearns chief economist.

[El Barto]

US economists as a whole are very liberal. This shows in your chart.

The dead give-aways:
Almost half think making the tax cuts permanent is a "crisis".
80% think Kerry and his tax and spend liberals will promote more fiscal discipline.

Clearly their politics trumps their common sense, and trapped in their academic circles, they don't even realize it.

[elwoodblues]

The fact that they disagree with you is not a dead giveaway of bias.

[ThaSaltCracka]

[ QUOTE ]
US economists as a whole are very liberal.

[/ QUOTE ] wow... this is incredibly stupid. In fact most economist are conservative, and you should know that. Take a look at the Wall Street Journal if you like. I think the problem many economist have with the tax cuts is that they were cut in the wrong area.

Personally, I would think cutting more middle to lower class taxes is better because it is more likely to increase consumer spending. Instead, because Bush's tax cut favored the upper class, who are notorious tight wads who like to save their money instead of spend it.

All of this essentially leads to more government spending and an increase in the national deficit, both of which are bad for the economy if they are excessive. I don't think thats a liberal or conservative view in economics, I thought that was just widely accepted.

[Kurn, son of Mogh]

If you took all the economists in the world and layed them end-to-end, they still wouldn't reach a conclusion. [img]/images/graemlins/cool.gif[/img]

[adios]

[ QUOTE ]
wow... this is incredibly stupid. In fact most economist are conservative, and you should know that. Take a look at the Wall Street Journal if you like.

[/ QUOTE ]

C'mon that doesn't prove most economists are conservative [img]/images/graemlins/smile.gif[/img].

[El Barto]

[ QUOTE ]
In fact most economist are conservative

[/ QUOTE ]

This was a poll of 56 "Academic" economists. Unlike their private sector brethren, they are free to be political without consequences to their employer's bottom line. This is a liberal group, you are just plain wrong in your assumptions.

[ThaSaltCracka]

you said most US economist are liberal, and that is patently false and stupid. In doesn't even matter that they are academic economists, they still know how the economy works, and they realize that the Bush tax cuts are bad.

[crash]

I have no idea how liberal U.S. economists ("academic" or otherwise) are, but I will make the following observation:

If I wanted to know the answer to a math question, and all the math academics agreed on the answer, I would trust them.

Ditto for, say, geology.

So why, when economists assert something, does the average person feel free to ignore their conclusion, as if the average Joe knows as much about economics as the "academics" do?

Of course, the analogy is not exact, as the economists don't all say the same thing. Plus, you might have worries about how exact a science economics is, or whether it's a science at all.

I just don't understand people who claim to "know" that Act X (tax cut, NAFTA, whatever) will do to the economy. When I have a question like this, I ask the economists. So what if they're liberal, they've studied more than I have.