Saturday, March 01, 2008

So few changes since Oct. 2001

I was cleaning up an old e-mail account of mine that included some columns I wrote for my university newspaper during the 2001-2002 academic year. And most of the work holds up pretty well which is a bit depressing as we are still arguing over the same things today as we did seven years ago. Here is my October 5, 2001 column on the post 9/11 stimulas plan where the CW GOP proposal was to find a way to extend upper income bracket tax advantages:

My editor wants to kill me, for this column is coming in several hours late. I really had no idea what I wanted to write about. I could respond to Sean Mintus’ astute observations on the advantages of quitting smoking, or I could go off on the impossible nature of defeating terrorism forever, or I could again shock myself and say that I support the current administration’s willingness to think things through, but I really did not know what I wanted to write about. Thankfully, I had to work tonight, washing dishes and doing scullery duties at a local dive. I finally had an idea caused by a bunch of drunks who were talking as I was changing kegs and taking out a barrel of trash. As I was walking by a crowd of thouroughly inebriated forty-somethings, avoiding the sloshing pitchers of IC, none of that light shit, I heard one man loudly declare that we need Reagan back in office. Thankfully the toilet was working tonight so there was no shit in the garbage barrel for me to throw at this fine paying patron.
The drunk man loudly proclaimed that the country was on the right track in the 1980s, and that we showed mean old Quaddafi who was boss when we bombed empty tents after his operatives attacked a German disco, and that the government was not entirely evil. I do not understand why Reagan is lionized while Clinton is demonized for the same exact action of ordering high explosives precisely delivered to empty tents in the middle of inhospitable deserts. I do not understand the entire ‘Reagan is a living saint and the root of all that is good in the world’ mentality expressed by a significant portion of the Republican party. I do not understand how a man who ran as a fiscally conservative anti-deficit hawk is praised for quadrupling the national debt while another man who ran advocating a moderate expansion of services but brought the budget under control is demonized.
This strange hero worship is logically inconsistent, but is loudly proclaimed by the leadership of the GOP. The flaws of reality are striking the GOP right now as they attempt to respond the the current crisis. The knee jerk economic response of the Republican party at the moment is that all problems can be solved by tax cuts and tax cut alones. President Bush and the House leadership are pushing for an accelartion of the previously passed, and poorly designed tax plan in the hope that this will look like they are doing something while the economy sputters. Accelerating the reduction of marginal rates may have some benefit to the economy, but not enough for people are still worried about whether they’ll be laid off next week, and therefore they will not spend too much of their new income. Additionally, since the tax cut is poorly designed, any acceleration will produce massive fiscal hemorages at the end of the decade, when we can least afford it.
Accelerating already approved reductions at least has some economic merit. That can not be said about other proposals which seek to take advantage of national shock and the stifling of any reasoned debate against potential options as unpatriotic. One proposal is to reduce or eliminate the capital gains tax. This proposal will do nothing positive in the short term, and cost too much once the economy recovers in the longer term. In the short term, reducing the capital gains tax will probably lead to more stock market profit taking and losses. A further decrease in the stock market will lead to a further reduction in the wealth effect that so far has allowed consumers to spend. And finally, the Northeastern liberal in me says that we should look at proposals that help the other 90 percent of the population who are not direct beneficiaries of this proposal. There are several other proposals that provide little short term economic benefits but provide plenty of ideological and theological comfort for some Republicans who never paid attention to introductory economics after the first test.
So what should we do if supply side tax cuts are not the answer to a short term economic slump? I say that we should reaffirm Keynes’ insight that demand is often the cause of economic recessions and booms. The federal government has already approved a fifty five billion dollar stimulas package with the airline shareholder bailout (again, economically inefficient in my opinion) and the forty billion dollars for recovery in New York City and military expenses. This is a start, for the vast majority of that money will quickly be consumed and then circulated through the economy. Once all of the dollars are finished circulating, this package could account for several hundred billion dollars in economic activity. However, this is probably not enough.
We can count on more short term military spending, although national missile defense should be opposed as it is effectively useless against probable threats even if it worked right. The federal government should also rescind several parts of the recently passed tax cut. The easiest area to repeal is the repeal of the estate tax. That is a political gimmick worth 600 billion dollars over the next decade. This money should be used to fix the alternative minimum tax, which will benefit far more people, and also appease the long term bond market, so interest rates are lowered. Additionally, the federal government should help rebuild lower Manhatten because the government failed to provide a collective, public good, namely security. That job will cost another fifty to sixty billion dollars. Finally, in the short term stimulas area, the government should adapt Professor Fischer’s idea of reducing payroll taxes so that everyone receives additional income. Will any of these proposals be enough to solve the economic sniffles of the nation by themselves? NO, but a combination of smart budgetting, short term stimulation, and added cash income to those with the greatest cash constraints (the working poor) will produce these benefits. I guess the lesson is that Reagan got it wrong, taxes sometimes are a good thing when public goods are provided, and Keynes got it right.

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