In today’s Financial Times(hardly the liberal media), Martin Wolf has an interesting article on Supply Side Economics. Mr. Wolf is the chief economics commentator for the FT, and not being American can look upon the situation and judge it objectively. That is why while he marveled at the political genius of supply side economics, I titled the post “Real World Consequences…”. He is observing our political machine from afar, but we here in America will have to live with the consequences of November.
So let me just pick out a few highlights and enjoy the article. It pins down the true incompetence of the republicans unlike any article I have ever read.
*My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either.
*Greg Mankiw, no less, chairman of the Council of Economic Advisers under George W. Bush, has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”.
*Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years (and lets not forget the republicans are running on the “Vibrant economy” of george bush this year!!
* Thus, according to the International Monetary Fund, the impact of discretionary stimulus on the US fiscal deficit amounts to a cumulative total of 4.7 per cent of GDP in 2009 and 2010, while the cumulative deficit over these years is forecast at 23.5 per cent of GDP. In any case, the stimulus was certainly too small, not too large. (Most credible economists will argue that we need another stimulus).
*The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.
In sum, a great deal of trouble lies ahead, for the US and the world.(I think it has been said many different ways but never this well, there will be dire consequences for letting the Paul Ryan’s, Jon Kyl’s, John Boehner’s, and Mitch McConnells of the world in charge of our economy. They had the reigns once and the results were disastrous, now they have to appeal to even farther right minority. Heaven help us!
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