Posted by Bill on May 03, 2003 at 17:27:04:
In Reply to: Re: Re: Another on the Brink posted by Scott on May 02, 2003 at 16:53:47:
The current recession? The recession began in March 2001. It ended shortly thereafter (3 mos. or so). The economy has been growing at a slow rate since then, too slow to keep up with the growth of the workforce, and so we have a slow economy. We are not in recession unless there is negative growth. If we were to have another recession, they would call it a "double-dip" recession.
Reaganomics or supply-side economics: Give the investing class more money to boost the supply of goods. Hence supply-side. If there is not enough money to be borrowed by business to keep up with demand, scarcity will cause prices to inflate. George H.W. Bush called this "voodoo economics" (remember Ferris Bueller's Day Off?).
Keyenesian or demand-side economics: When the economy turns down and people lose their jobs, government should spend into deficit to create jobs or give people money to spend. If people don't have money to spend, the economy will continue to decline and you could go into depression (see Great Depression, slow economy, government concerned with balancing the budget and poor monetary policy). The government should spend in bad times, save in good times.
Here's the question: Is there not enough demand in this economy, or not enough supply? Too much of one without the other will create a bubble (prices rising higher than they are rationally worth, and the prices will eventually fall). Too much investment, the internet bubble. Too much demand, the housing bubble.
I think poor and middle class people need more money, because they will spend it, and I think the economy needs some cash. The investing class (in my opinion) is a little wary with the accounting scandals and the market crash right now, and they want to see some earnings. I don't think rich people need more money, because they don't have needs that aren't being met. They have homes, food, and health care. Frankly, I think the best thing the Federal government could do right now is give the states money, since the states are doing poorly. Nothing long term, because the economy will pick up. Short term stimulus should be just that, short term.
The President is proposing a tax package that is not short term, and it does not get money into the hands of the poor and middle class. An income tax reduction does not help the poor at all, because they do not pay income tax. A dividend tax cut helps the extremely rich more than the middle class, because most middle class families with dividend income have that money in a 401k, and that is already tax-free. The President hopes that with the dividend cut, more companies will pay out a dividend. Maybe, but again, it helps the extremely rich more than the average joe (or jane). And municipalities who want to sell bonds have to raise their interest rates to compete (because munis are tax free and would now have to compete with dividend stocks) making it more expensive for local towns to fund new projects.
Now a little history. Reagan cut taxes. He also raised them. He also signed every spending bill that Congress passed, so don't believe it when someone says "Congress spent into oblivion". Interest rates were very high. Government spending was high. Oh yeah, and HUGE Government defecits. George Bush raised taxes. There was a small recession at the end of his term. Bill Clinton entered office in a recession. He raised taxes. Then we had hugh growth. He balanced the Federal budget. George Bush took office. The economy went into recession (not Bush's fault). Then he cut taxes. Now the economy is the worst this country has seen since the Great Depression. Vote in 2004.
Bill
My .02, for what it's worth (less and less each day, it seems).
P.S. As I understand it, nearly all economists agree on nothing. Econ is a social science. It is a way to explain what happened, but is lowsy at predicting anything. Why? Because people are unpredictible. That's what makes being a human so fun.