Scatablog

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Thursday, March 30, 2006

AN F GRADE FOR CONGRESS IN BASIC MACROECONOMICS

Congress needs a refresher course in basic macroeconomics. It is the spending by the bottom three quarters of the income brackets that drives the economy, not the top 2%. With a fraction of the tax breaks accorded the top 2%, the bottom three quarters could sustain our economy by spending with less reliance on foreign credit to support their spending. That would be good for America because foreign nations, especially the Asian Tigers would hold less U.S. debt which would reduce their influence on U.S. foreign policy. Brookings estimated that one pass by China on a round of financing of U.S. consumer debt could cut ½ - 1% off the US GDP growth rate. Can we seriously believe that China cannot act unilaterally, i.e. take over Taiwan and expect any serious US opposition? The Administration talks tough about these issues, including China’s regressive trade policies, i.e. their artificially high currency value, but has no real leverage in these matters. Despite the logic of reducing this dependency, to do so would interfere with Bush's plan to put his wealthy constitutes ahead of the interests of the country. The argument that rewarding the wealthy with tax cuts encourages investment dissipates with the reality that investment has risen faster than necessary over the past eight years to sustain acceptable GDP growth rates, and (speaking of basic macroeconomics) has been driven by the multiplier and accelerator facilitated by a significant decline in interest rates orchestrated by years of monetary ease by the Fed. The recent pace of investment has little or nothing to do with the tax cuts for the wealthy. The Bush Administration merely used this irresponsible and unfair policy as a smoke screen (by, in Third Reichian fashion, continually repeating lies about it) to feather the nest of their political base.

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