Monday, November 10, 2008

Whose Deficit Is It, Anyway?

I know it's bad sportsmanship to shoot at a lame duck, however:

Paul Krugman has a lot of neat graphs up about FDR. FDR is to Democrats what Reagan is to Republicans. Krugman uses the phrase "expansionary fiscal policy" and says that the problem with our current system of government is that it encourages elected officials to cut taxes and services during boom years, and raise taxes and lower services in bust years.

What the public needs is just the opposite: higher taxes but lower services in good years, and lower taxes and more services during bad years. In order to make this happen, governments would have to plan ahead, and the sad but obvious truth is that planning ahead is not a strategy that the voters reward. A politician could raise taxes during a good year, but by the time people came up on bad years and thanked him for his wisdom, they'd already have voted him out of office for daring to raise their taxes during an expansion.

Anyway, Democrats have a reputation for being the "tax and spend" party, although I wonder how much of that is because they inherit bad economies from their predecessors. As has been pointed out before, Clinton gave W a prosperous nation. W is giving Obama a seatbelt and barf bag.

W's policies definitely qualify as fiscally expansionary (Anyone who still thinks W was a true conservative...wouldn't be reading this blog) but the question is this: by going the non-long-range-planning route, did W help create the current recession? Certainly, he has exacerbated it, because our government has few saved resources at a time when it needs them most. But did he actually precipitate it?

At what point in history and economics does expansionary fiscal policy become plain bad business?

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