February 6, 2009
An Economist's Advice to President Obama
Recessions are ideally prevented by countercyclical variations in the relevant money supply. As economies falter and the demand for labor wall, monetary authorities should automatically expand the money supply so as to restore the original wage level.
However, actual monetary authorities apparently lack the willingness and ability to so offset recessionary shocks. In view of this problem, anti-recessionary cuts in our Federal Income Tax rates have been an exceptionally effective way to prevent extended recessions in the U.S. Such anti-recessionary tax-cuts have thus been a regular feature of our economy since 1975, immediately after international oil prices began their irregular, recession-inducing, jumps after we lost our energy independence.
The sporadic tax-cuts we have seen since that time have been have been wisely timed by our legislatures to coincide with recessionary pressures and thereby keep our economy reasonably healthy despite its recalcitrant Federal Reserve Bank.
Most recently, Bush's '07 tax rebates were highly instrumental in preventing a recession in '07, which would have been quite substantial because the '07 jump in international oil prices was accompanied by the spreading burst in our real estate bubble. However, with a further jump in oil prices and further decline in real-estate prices in '08 calling for additional macroeconomic stimulation but the Iraq war straining our '08 budget, no '08 tax cut emerged to counter the steadily worsening '08 recession. So we now are in an increasingly serious recession accompanied by an unusually dire bankruptcy and foreclosure wave, a steep recession very similar to the first year of the Great Depression of the 1930's.
So our current recession has grown to where it is an extremely serious threat to the health of our economy for years to come, President Obama and Congress should accede to the demands of at least a few Republican Senators to get the latest Stimulus Bill passed. Informed economic theory, supported by a series of econometric studies, tell us that greater government expenditures matter very little while tax-cuts matter a lot in helping a recessionary economy recover. This is because greater government expenditures to some extent "crowd out" private expenditures while tax-cuts not only generally improve production incentives but also raise expected inflation rates because people will be more liquid in the future as they will not have to turn over as much currency to the government at future peak-tax-dates.
So, to the extent that the Republicans are demanding smaller expenditure increases and more extensive tax cuts, these demands should be met rather than risking the health of our severely ailing economy.
Earl Thompson is professor of economics at UCLA.
To comment on this or any other American Thinker article or blog, you must be a subscriber to our ad-free service. Login to your subscription to access the comments section. You can subscribe on a monthly basis for $6.79 a month or for a year at $69.99
Login
Subscribe / Change PwdAd Free / Commenting Login
FOLLOW US ON
Recent Articles
- The Soul of the Democrats
- Canada at the Crossroads
- Kash Patel: Poised to Lead the FBI Into a New Era
- Never Again?
- Margaret Brennan’s Face-Plant on Free Speech: Welcome to Face the Nonsense
- The Swamp is Slowly Draining
- Democrats in the Wilderness
- A Missing Person’s Alert So Identity-Specific It Stops Being Useful
- Naive Liberals
- Guardians of Liberty: Trump and the Constitution
Blog Posts
- Democrats defend the indefensible
- Don't touch my favorite program
- DOGE takes on the Social Security monster
- Donald Trump’s latest executive order reinstates a constitutional government
- Senate aide who filmed a porno video on Capitol Hill monetizes his degeneracy and starts selling ‘content’ on OnlyFans
- North Dakota Republicans kill a bill that would have criminalized abortion
- Battling bishops sue the Trump administration for 'their' migrant millions
- The scientific method can move us a bit closer to God
- Don’t chip me, bro!
- The Trump Effect moves even the nastiest anti-Trump judges!
- Maybe we need a government shutdown
- If Zelensky does not want to negotiate with the U.S., we will negotiate with someone else
- The David that will slay the abortion industry Goliath
- Lemon is Dead
- Could Trump abolish the income tax?