Wednesday, May 30, 2012

Keynesians When They're In Charge

Bruce Bartlett on Republican Keynesians:

In 2001, George W. Bush responded to the recession that began in March by proposing another tax rebate of $300 to $600, even though extensive research by the economists Alan Blinder and Franco Modigliani and Charles Steindel showed that the 1975 rebate had very little impact on growth. According to the journalist Ron Suskind, when Mr. Bush’s economic advisers tried to tell him that the rebate was bad policy, he told them, “If I decide to do it, by definition it’s good policy.”
Although research by the economists Joel Slemrod and Matthew Shapiro in 2003 found that the 2001 rebate had minimal stimulative effect, Mr. Bush supported yet another rebate in 2008 of $300 to $1,200, depending on one’s income and filing status, to counteract the recession that began in December 2007.
Subsequent research by the C.B.O. and the Bureau of Labor Statistics once again found that it had a minimal impact.
My view is that sometimes Keynesian policies are right and sometimes they are wrong; it all depends on the economic circumstances. Historically, many Republicans have apparently agreed.
First off, tax rebates just don't work as well dollar for dollar as government purchases to stimulate the economy.  Tax cuts were 1/3 of the Obama stimulus.  However, I haven't heard Republicans say tax cuts don't work.  Also, Keynes pushed spending during downturns and running surpluses during good times, unlike the irresponsible Republicans, who cut taxes in either case. 

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