Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Tuesday, November 14, 2006

The Bush Fiscal Policy Botch (Southern Ring of the Clown Show Department)

Max Sawicky is shrill:

MaxSpeak, You Listen!: THE ECONOMIC THOUGHT OF N. GREGORY MANKIW:
25% OF WHA?
: 25% OF WHA? Professor Mankiw channels the finding of an "economist" at NRO... to the effect that tax cuts accounted for only "about a fifth" of the dizzying swing in projected ten-year deficits in 2001 from $5.6 trillion surplus to $2.9 trillion deficit. He ranks the impact of tax cuts behind "spending" and "changed economic and technical assumptions." Somebody in the comments kindly points out that interest, classified under "spending"... is actually an artifact of tax cuts as well as spending increases. This knocks the impact up from a fifth to a quarter.

Of the $2.9 trillion in spending, $1.6 is defense. The tax cuts are measured at $1.6 trillion. Now the changed economic and technical assumptions... mean that the original $5.6 trillion surplus projection was money that did not in fact exist.... The correct 2001 projection would have been a surplus of $2.1 trillion... so the swing is from plus 2.1 to minus 2.9, or $5T total.

Ergo by advanced mathematics as my econometrics prof used to say, the Bushist contribution to that $5 trillion swing is $1.6T from defense and $1.6 from tax cuts, or 64 percent, the wages of fiscal conservatism in our time, thanks in no small measure to the economic leadership of Professor N. Gregory Mankiw.

I would dispute Max's division. Of the $5 trillion ten-year swing in the deficit, $3.2 trillion--64%--is due to the Bush failure to properly fund the defense buildup--its insistence on cutting taxes even after it becomes clear that it wants to spend another fortune on defense.

The other 1.8 trillion--36%--is also the fault of the Bush administration: increases in other categories of spending above the 2001 projection baseline. Appropriate fiscal policy would have had us running a large surplus--a more than $2 trillion ten-year surplus--to prefund the expenditures that will be needed because of our aging population. No matter whether you think spending should be higher or lower than it currently is, every single fiscal policy move of this administration has carried us in the wrong direction, away from the surpluses we should be running right now, and collectively they have been a huge mistake. That tax cuts are not the overwhelming proportion of mistakes speaks not about the innocucuity... innocuousness... innocularity... whatever... of tax cuts, but of the magnitude of unfunded spending increases.

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