SAVING THE WORLD:

Grading the President: In a recent survey, a sampling of mainstream economists gave the White House a fiscal report card. (DAVID BROOKS, 6/01/04, NY Times)

There are four big objections to the tax cuts. The first is that you don't cut taxes in a time of war. This is the least persuasive. Some outside economists say the cuts created or preserved 1.5 million jobs. It's hard to see how the war effort would have been enhanced with those people out of work. If we had wanted to create a sense of shared sacrifice, which we should have, it would have been far better to institute an ambitious national service program.

The second objection is that the cuts were poorly designed. They were drawn up in the midst of prosperity and then wheeled out in response to recession. Even Decision Economics' Allen Sinai, a big supporter of the cuts, says the stimulus could have been stronger if more of the cuts had been distributed down the income scale. The White House lacks a compelling response to this.

The third argument is that the cuts should have been temporary. White House folks argue persuasively that given the rolling series of blows — the bubble, the corporate scandals, the war jitters — a short-term stimulus would not have worked. "You were not going to get a sustained recovery from something temporary," Friedman says.

The final and most serious argument is that whatever the short-term benefits, the tax cuts have left us with a long-term fiscal mess. When you ask administration folks about the deficit problem, they argue that it isn't caused primarily by the cuts, but by rising health care costs and the aging baby boomers. That's true, but it evades the fact that the tax cuts made the situation worse.

Various folk at various times have proferred various states and regions as economic rivals to the U.S., but the recent slump demonstrated pretty conclusively that the world economy has only one engine: America. At a time--post-9/11--when we really could have used some pump-priming by the Europeans in particular they instead jacked up their interests rates to self-destructive levels just to try to make the euro look good and offset their looking toothless in the war on terror.

So the question is rather easy: where would the world and American economies be right now if we hadn't passed huge tax cuts?

Posted by Orrin Judd at June 1, 2004 10:40 AM