The Center for American Progress’ Matthew Yglesias asserts that “George W. Bush was a terrible president” and that since “the end of his administration coincides with everything being in a sorry state” that “it would be appropriate to respond with new and different policies.” We’ll let history judge how terrible a President George Bush is/was, but Matt is right about one thing: our country does need new and different policies. Problem is the Obama temporary tax cut/permanent new spending stimulus plan is Bushism on steroids.
Heritage predicted back in January that Bush’s tax rebate checks would not stimulate the economy, and we were right. Heritage fought Congress’ massive new spending this year, and none of that has prevented the recession either. A real change in policies would be to abandon all of the Keynesian ideas embraced by Bush/Obama. As Obama’s own new Council of Economic Advisers chair Christina Romer has shown, Keynes ideas simply do not work:
[The Romers’] bottom line is that “exogenous” tax cuts–that is, tax cuts not intended to offset the business cycle–have a large positive effect on gross domestic product. Specifically, a tax cut of 1% of GDP will raise GDP by about 3%.
The Romers’ research actually undercuts the Keynesian approach in a more fundamental way. They find that tax cuts to offset a recession are ineffective, but their reasoning would also apply to government spending increases to offset a recession. In other words, if she believes her own research, Christina Romer should be a strong critic of her new boss’s policies.
George Mason economics professor Arnold Kling also sees a doubling down on Bush policies in Obama’s stimulus plans:
Mark Thoma gives us Joseph Stiglitz and Martin Feldstein being interviewed by Charlie Rose. I listened to it last night, and I found it so chilling that it adversely affected my sleep. Two issues stand out.
1. Both of them are keen on re-working mortgages. Neither of them mentions non-owner-occupied housing or any of the other issues that make re-working mortgages extremely difficult. At one point, Stiglitz says that banks may be postponing writing down loans because they are waiting to see what sort of bailout they might get from the government. But he doesn’t draw the obvious conclusion that government interference is the problem, not the solution.
2. Both of them are keen on trying a big stimulus. Stiglitz says that everything done so far has been a failure, but again he doesn’t draw the obvious conclusion. Instead, he says we have to try something bigger and different.
I was reminded of the Battle of the Somme, one of the worst policy blunders of all time. Having experienced nothing but failure using offensive tactics up to that point, the Allies decided that what they needed to try was….a really big offensive. Just as Feldstein and Stiglitz pay no attention to the on-the-ground the housing market, the British generals ignored the impact of machine guns on men advancing over open fields.