Thursday, November 30, 2017

What Bill McBride says

 - by New Deal democrat

Bill McBride a/k/a Calculated Risk hits the nail on the head:

The current tax cut bill is a[ ] clear policy mistake. 
First, if we look at the business cycle and the deficit, economic theory suggests that the government should increase the deficit during economic downturns, and work down the deficit during expansions.  The economy is currently in the mid-to-late stage of a recovery, so decreasing the deficit makes sense now - not increasing the deficit.
This is particularly so since after ten years, the economy has finally made it back to its long term trendline growth (via WaPo):
For the first time since the end of 2007,  the economy, measured as gross domestic product (GDP), is at its (theoretical) potential.

There is simply no rational excuse for a producer-sided tax cut. The economy is not suffering from a lack of supply. It's one big problem is the lack of real long-term growth in middle, working, and lower class incomes, constraining demand.

Two points of my own:

1. One way I depart from progressive orthodoxy is that I favor a ***COUNTERCYCLICAL*** (have I made that emphatic enough?) balanced budget amendment, mandating surpluses in good economic times (like now), to pay for deficits in hard times like recessions.

2. The GOP's Johnny-one-note "tax cuts for the wealthy are always good!"  orthodoxy -- which by the way means they have no longer believe in the 'Laffer Curve' since that theory agrees that there is a tipping point below which tax cuts do raise total revenues --  means that if a recession hits while they are in power between now and 2020, they will do nothing to alleviate the pain for the vast majority of Americans, If anything, if the "fiscal trigger" survives, mandating budget cuts or tax increases during a recession (when declining tax revenues mean bigger deficits), the pain will actually be intensified.