WHAT’S WHAT ON THE STIMULUS
WHAT’S WHAT ON THE STIMULUS PACKAGE?: I must say I have mixed feelings. Ryan Lizza makes a great case for why the administration is pushing so hard for a tax cut on dividends — boosting the stock market leads to a wealth effect that pumps up consumption. Lizza cites the work of one Dean Maki, ...
WHAT'S WHAT ON THE STIMULUS PACKAGE?: I must say I have mixed feelings. Ryan Lizza makes a great case for why the administration is pushing so hard for a tax cut on dividends -- boosting the stock market leads to a wealth effect that pumps up consumption. Lizza cites the work of one Dean Maki, who was a terribly smart classmate of mine in the Stanford economics program. Go Dean! I'm also a bit puzzled at the Democratic emphasis on the distributional implications of the tax cut. OK, I'm not, but here's the thing -- hasn't this economic slowdown had a disproportionate impact on the middle class? [You don't know?--ed. Look, this is Mickey Kaus' bag. Mickey, has the slowdown disproportionately affected the bottom 20%? Will this impact welfare reform?] This Census table suggests that I could be wrong, but it ends in 2001. That said, I'm troubled by the the effect of a burgeoning deficit on increasing long-term interest rates. Despite Megan McArdle and Mickey Kaus' best efforts, I tend to side with Brad DeLong on this one. There's a political argument against the tax cut as well, and it comes from today's Washington Post: "President Bush's 10-year, $674 billion economic growth package -- coupled with a war with Iraq -- would push the federal budget deficit well into record territory next year, and possibly as high as $350 billion, private-sector budget forecasters said yesterday.... in sheer dollar terms, it would easily eclipse the $290 billion record set in 1992, the last year of George H.W. Bush's administration. It also would be a steep fall from the record $236 billion surplus of 2000." Does W. really want any parallels drawn between the current economy and the 1992 economy? Plus, I can't escape the parallels between the current economic situation and 1993. In both situations, the economy was sluggish, but the long-term fundamentals (i.e., labor productivity) looked good, except for long-term interest rates. If you recall, Clinton wanted a short-term spending boost, but it was wisely shot down by deficit hawks. I can't escape the feeling that -- economically -- this remains be the best course of action for the present. However, both politicians and pundits have a bias that favors action over inaction. UPDATE: The New Republic's &c sagely defends the logic of ceteris paribus against the Wall Street Journal's editorial page. It's truly a sad day when the TNR has to explain the building blocks of economic theory to the Journal.
WHAT’S WHAT ON THE STIMULUS PACKAGE?: I must say I have mixed feelings. Ryan Lizza makes a great case for why the administration is pushing so hard for a tax cut on dividends — boosting the stock market leads to a wealth effect that pumps up consumption. Lizza cites the work of one Dean Maki, who was a terribly smart classmate of mine in the Stanford economics program. Go Dean! I’m also a bit puzzled at the Democratic emphasis on the distributional implications of the tax cut. OK, I’m not, but here’s the thing — hasn’t this economic slowdown had a disproportionate impact on the middle class? [You don’t know?–ed. Look, this is Mickey Kaus’ bag. Mickey, has the slowdown disproportionately affected the bottom 20%? Will this impact welfare reform?] This Census table suggests that I could be wrong, but it ends in 2001. That said, I’m troubled by the the effect of a burgeoning deficit on increasing long-term interest rates. Despite Megan McArdle and Mickey Kaus’ best efforts, I tend to side with Brad DeLong on this one. There’s a political argument against the tax cut as well, and it comes from today’s Washington Post: “President Bush’s 10-year, $674 billion economic growth package — coupled with a war with Iraq — would push the federal budget deficit well into record territory next year, and possibly as high as $350 billion, private-sector budget forecasters said yesterday…. in sheer dollar terms, it would easily eclipse the $290 billion record set in 1992, the last year of George H.W. Bush’s administration. It also would be a steep fall from the record $236 billion surplus of 2000.” Does W. really want any parallels drawn between the current economy and the 1992 economy? Plus, I can’t escape the parallels between the current economic situation and 1993. In both situations, the economy was sluggish, but the long-term fundamentals (i.e., labor productivity) looked good, except for long-term interest rates. If you recall, Clinton wanted a short-term spending boost, but it was wisely shot down by deficit hawks. I can’t escape the feeling that — economically — this remains be the best course of action for the present. However, both politicians and pundits have a bias that favors action over inaction. UPDATE: The New Republic’s &c sagely defends the logic of ceteris paribus against the Wall Street Journal’s editorial page. It’s truly a sad day when the TNR has to explain the building blocks of economic theory to the Journal.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
More from Foreign Policy
Can Russia Get Used to Being China’s Little Brother?
The power dynamic between Beijing and Moscow has switched dramatically.
Xi and Putin Have the Most Consequential Undeclared Alliance in the World
It’s become more important than Washington’s official alliances today.
It’s a New Great Game. Again.
Across Central Asia, Russia’s brand is tainted by Ukraine, China’s got challenges, and Washington senses another opening.
Iraqi Kurdistan’s House of Cards Is Collapsing
The region once seemed a bright spot in the disorder unleashed by U.S. regime change. Today, things look bleak.
Sign up for Morning Brief
Foreign Policy’s flagship daily newsletter with what’s coming up around the world today. Delivered weekdays.
By submitting your email, you agree to the Privacy Policy and Terms of Use and to receive email correspondence from us. You may opt out at any time.
