Policy Options Dwindle as Economic Fears Grow

Posted by Kendall Harmon

It increasingly seems as if the policy makers attending like physicians to the American economy are peering into their medical kits and coming up empty, their arsenal of pharmaceuticals largely exhausted and the few that remain deemed too experimental or laden with risky side effects. The patient — who started in critical care — was showing signs of improvement in the convalescent ward earlier this year, but has since deteriorated. The doctors cannot agree on a diagnosis, let alone administer an antidote with confidence.

This is where the Great Recession has taken the world’s largest economy, to a Great Ambiguity over what lies ahead, and what can be done now. Economists debate the benefits of previous policy prescriptions, but in the political realm a rare consensus has emerged: The future is now so colored in red ink that running up the debt seems politically risky in the months before the Congressional elections, even in the name of creating jobs and generating economic growth. The result is that Democrats and Republicans have foresworn virtually any course that involves spending serious money.

The growing impression of a weakening economy combined with a dearth of policy options has reinvigorated concerns that the United States risks sinking into the sort of economic stagnation that captured Japan during its so-called Lost Decade in the 1990s.

Read it all.

Filed under: * Economics, PoliticsEconomyCorporations/Corporate LifeCredit MarketsHousing/Real Estate MarketLabor/Labor Unions/Labor MarketStock MarketThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentBudgetFederal ReserveThe National DeficitThe United States Currency (Dollar etc)Treasury Secretary Timothy GeithnerPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

6 Comments
Posted August 29, 2010 at 7:11 pm [Printer Friendly] [Print w/ comments]



1. DonGander wrote:

Yep, we are running out of band-aids to put on this cancer…..

Don

August 29, 10:04 pm | [comment link]
2. Capt. Father Warren wrote:

Which means radical surgery is needed.  We have been here before….it was called Jimmy Carter.  The economy in 1979 was a mess of stagflation and sky high interest rates.  It was stuck in neutral and the Carter administration resorted to telling us in effect “this may be as good as it gets”.
Reagen came into office and let a wrenching correction run its course and slashed marginal tax rates which unleashed the biggest business expansion in our modern history.
But wait, the current crowd is not out of ideas yet: They will let the Bush tax cuts expire…who believes that is good?  They will let ObamaCare continue….who believes that is good?  They still want Cap & Trade….who believes that is good?  And don’t forget their debt comission who will no doubt prescribe a VAT….who believes that is good?
So enjoy the current economy!  If we don’t start the major surgery in November we may be looking back on these days as the “roaring 2010”!  And how pathetic that would be!

August 30, 7:44 am | [comment link]
3. Septuagenarian wrote:

Of course the sky high inflation of 1979 began during the Nixon-Ford years. Ford’s “solution” to inflation was W.I.N. buttons; it didn’t work.

And yes, if you cut taxes and raise government spending as Reagan did you will cause business expansion. You will also increase the national debt. George H. W. Bush suffered the consequence of that.

We did gradually reduce the budget deficits during the Clinton administration by raising taxes and controlling expenditures. That also created a business boom, which bubble burst at the beginning of George W. Bush’s terms. He followed the Reagan policy of tax cuts and increased government spending, roughly doubling the national debt in 8 years. And we are now experiencing the consequence of that policy.

To actually balance the budget (much less reduce the debt) it will be necessary for three things to happen: 1) increase taxes, 2) decrease spending and 3) increase economic activity. That happened during the Clinton years. It is the fiscal policy which governments must pursue in boom years. If the government decreases taxes and increases spending (as Nixon-Ford, Reagan and Bush did) you are guaranteed to create huge deficits; you may trigger a boom, but it will burst. And we are now in the hangover from the party.

August 30, 1:34 pm | [comment link]
4. Capt. Father Warren wrote:

#3, you might as well advocate lighting a match by first pouring water on it.
Your memory of Reagen is as faulty as your prescription.  No Sale!

August 30, 8:47 pm | [comment link]
5. Septuagenarian wrote:

#4, your memory of Reagan is totally faulty. Yes, he did cut taxes. He also increased spending dramatically. The result, unsurprisingly, was soaring deficits.

August 30, 9:31 pm | [comment link]
6. Capt. Father Warren wrote:

To set the record straight:
1.  Reagen did cut marginal tax rates
2.  Reagen did indeed increase spending on national defense, particularly the US Naval fleet which was in deplorable shape
3.  Tax revenues to the Feg Govt INCREASED because of the marginal rate cuts which spurred intense economic activity and reciepts.
4.  And the democratic controlled congress managed to spend faster than the reciepts came in which led to an increase in deficit spending.
Note: such deficit spending being a laughingstock compared to the deficits President O and his democratic congress are racking up.

August 31, 7:55 am | [comment link]
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