Issues, Part 6: Economic Stimulus

Part 6 of my discussion of issues in this election, based on comments made by Nicolas Farly on Farleyman's Blog (Part 1,Part 2,Part 3, Part 4, Part 5) Nic Said:

6. I feel the Bush Tax-based system for recovery is horrific. While it temporarily has brought about relief for America it will hurt us in the long run with the increased deficit leaving future generations to foot the bill. "When the economy needed short-run stimulus without increasing the long-run deficit, President Bush got it backwards, passing an initial round of tax cuts that Economy.com found had no effect in lifting us out of recession.” He then passed more deficit-increasing tax cuts that Goldman Sachs described as "especially ineffective as a stimulative measure." When small businesses and families needed relief from skyrocketing health-care and energy costs, he chose sweetheart deals for special interests over serious plans to reduce costs and help spur new job creation."

I am skeptical of the power of the President, or Government in general to have much effect on the economy. In my opinion, the best thing they can do is stay out of the way. This doesn't mean that I oppose all government regulation, but I don't think it is the Government's job to spur new job creation. Even if I were to be convinced that it was the Government's job, it is highly unlikely that I would be convinced that they could do it well. The 2001 recession was a natural, and needed correction from the over-optimistic bubble of the late 90s. The fundamentals of the economy were still sound and a recovery was, in my opinion, pretty much assured. As to the issue of the tax cuts, well, in the words of Zell Miller, "I never saw a tax cut I didn't like." Yes, I disapprove of deficit spending and in a perfect world a tax cut would go hand in hand with a spending cut. Unfortunately, there are few politicians who don't like to spend money. Even so, I still like the tax cut. My theory is that there is an acceptable level of deficit spending that is going to exist. The only times this won't occur is when the government is strongly partisan and divided between the parties (yes, from a purely economic standpoint this does mean that I think a Kerry victory would be a good thing). Absent these conditions the government will overspend to a politically acceptable level. War increases where this acceptable level is, and that is why we have such high deficit spending currently. The fundamental problem though is how much the government spends, not how they finance it (taxes or deficit spending). Since I believe that the government will deficit spend to a politically acceptable level, a tax cut will still cut the total amount of government spending. I am aware that this is purely a theory and many economists would disagree with me on this (others would agree, thats the great thing about economists, you can always find someone who agrees with just about anything). As to the specific merits of this tax cut, as opposed to other tax cuts that could theoretically be implimented. This one seems pretty good to me. The most important step that we could take is to simplify the tax code. Both Bush and Kerry have come out in favor of this, although I am sure the exact measures each would take to do so would be different. However, this is something that is most likely to be accomplished if a single party is in control of congress and the presidency. Since there is no chance that Democrats will retake control of the House and it is very unlikely they will take control of the senate, a Bush victory seems the most likely way that this will happen.