Sunday, October 5, 2008

He Told Us to Go Shopping. Now the Bill Is Due.

It's widely thought that the biggest gamble President Bush ever took was deciding to invade Iraq in 2003. It wasn't. His riskiest move was actually one made right after the Sept. 11, 2001, terrorist attacks when he chose not to mobilize the country or summon his fellow citizens to wartime sacrifices.

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JTapp said...

While I agree that Bush's folly was war without sacrifice, the author appears to be uneducated about macroeconomics in the least and what caused the crisis.

He seems to assume that Bush sets monetary policy-- "Bush seems to have calculated -- cynically but correctly -- that prolonging the credit-fueled consumer binge could help keep complaints about his performance as commander in chief from becoming more than a nuisance."

That's nonsense. His tax cuts didn't fuel a credit-fueled consumer binge, nor did they contribute to the financial crisis. The low interest rates set by the Fed played a role, the packaging of CDOs and unregulated default swaps played another, the push for universal home ownership was another.
But the wars and the tax cuts did not. Nor would raising taxes have prevented this crisis. We can prove that empirically.

What his tax cuts DID do was widen the deficit and national debt in the long-run. Combine that with the rescue plan and other expenditures this year and we now have a record-high debt ceiling. We have less room to maneuver with other needed expenditures (imagine if there was another Katrina right about now).

"The bill" isn't due now, but our kids eventually will have to pay it.

Eric said...

Good points. The lack of maneuvering room at this point is unnerving.

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