August 09, 2004

Economic Mistakes
Posted by Dale Franks

David Hogberg writes that if the President thinks that the less than stellar jobs news of the last two months night be jeopardizing his re-election, then he has no one to blame but himself. Hogberg points out three key economic errors that Bush made.

Front Load Tax Cuts: The Bushies should have learned this from the Reaganites. The Reagan recovery didn't begin until his income-tax cuts were fully phased in during early 1983. By the time Reagan ran for reelection the following year, the economy was creating jobs hand over fist. The economy would be doing that now if Bush had not waited until mid-2003 to fully phase in his tax cuts. In fact, in the original Bush tax cut, the income-tax reductions didn't fully phase in until mid-decade, owing to concerns over possible budget deficits. Budget deficits still returned anyway, and the press still blamed Bush for them anyway. The lesson is to phase tax cuts in fast, and get the economy moving: Deal with deficits later.

Skinflint, Not Spendthrift: In the ten quarters since Bush's first budget took effect, the percent change from the preceding quarter of the federal-government portion of gross domestic product is an average of 7.6 percent. In the ten quarters preceding Bush, it averaged 3.1 percent. Of course, a lot of that was necessary defense spending in the wake of September 11. Yet much of it comes from the domestic side. Given that the private sector uses resources more efficiently than the public sector, the increased spending has likely slowed the recovery. And Bush has gained little from these programs. He has not neutralized the Democrats on the education issue, and seniors are, so far, not too happy with the prescription-drug program. Future Republican administrations should realize that they aren't going to "out-Democrat" the Democrats with new government spending. All that spending will do is jeopardize economic growth.

Be Principled On Free Trade: Instead, this administration has played politics with it. While it has fought for and won the reauthorization of fast-track authority and passed new agreements with Chile and Singapore, it has instituted steel tariffs and textile quotas to win races in Pennsylvania and the Carolinas. The steel tariffs in particular were both economically and politically dumb. A Consuming Industries Trade Action Coalition Steel Task Force study from last year showed that the tariffs had resulted in over 200,000 lost jobs in the steel-using industry during 2002. Those 200,000 fewer jobs are undoubtedly helping keep Bush's numbers on the economy down at present. Clearly, short-term political payoff can have long-term negative economic repercussions. It's the latter that can jeopardize a president's reelection chances.

The Bush administration has tried to have it both ways in economic policy. They've pandered to the conservatives with tax cuts, but to liberals by holding off on them as log as possible. They've spent money like sailors on a singapore shore leave, and not just because of extra post-911 spending. And, of course, their policy on agricultural subsidies, tarrifs and other forms of protectionism have been designed to attract populist support. Now, they're wondering why job growth has been so slow, even with strong GDP growth.

Well, it doesn't take a rocket scientist to figure it out.

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