Monday, May 22, 2006

Happy days are here again?

It is to Laff

The president's approval ratings are hovering in the low thirties or high twenties, depending on what poll you read. The numbers are truly remarkable—remarkably high for history's most incompetent president. Even if only one American in three now considers Bush to be doing a good job, that still provides millions of people eager to praise their Dear Leader. Recently some unreconstructed supply-siders sprang to the defense of the president's sorry economic record.

From the May 15, 2006, Letters to the Editor:

The good news you don't hear

You would never know that our economy is doing as great as it is, especially with how low the unemployment rate stands currently. The liberal looks at the doom and gloom of everything and never looks at anything good that happens. GDP was around 4.2 percent for the first quarter of 2006.

Yes, we are dealing with high gas prices, and the cause is not price gouging, it is as simple as supply and demand, which dictates prices. The oil companies don't set the price of a barrel of oil. The market sets it. We should have built more refineries and dug for more oil in Alaska and anywhere else in the country. That would help us stop depending on foreign oil and eventually would bring the price down.

Davis Harris, Sacramento

From the May 21, 2006, Letters to the Editor:

Tax cuts and revenue increases

The old Sinatra favorite advises that love and marriage go together like a horse and carriage. So do tax cuts and revenue increases.

The lead editorial May 16 says that Lucky Arnold must be careful with the budget windfall of huge, unanticipated receipts. Then the second editorial says we need to sacrifice and feel the pain of higher taxes. Where did Arnold's windfall come from? The Bee is appalled that some in Congress actually say that, "Lower taxes equal more federal revenue." And a lot more state revenue too.

Tax cuts and revenue increases do go together like a horse and carriage.

The Laffer Curve has some reality. The Congressional Budget Office and many others use static analysis. If you lower taxes, receipts must decrease. They refuse to accept the fact that tax cuts do stimulate the economy and revenues do increase.

The problem is spending. That's among the reasons Gray Davis is no longer governor. That's why the federal debt keeps increasing, despite a roaring economy. Will tax cuts let us grow out of our debt? No! But with some spending restraint the cuts will stimulate and the debt will decrease.

Gene R. Wutke, Sacramento

Are they right? Is the economy in great shape? Are Bush's tax cuts the reason things are so great?

It's true that the economy is better at this point halfway through Bush's second term than it was at any time during his first term. Bush's first term was remarkable for its failure to create any jobs, so I suppose he had nowhere to go but up. The White House has been bragging that “average hourly earnings have risen 3.8 percent over the past 12 months, their largest increase in nearly five years.” That sounds pretty good, doesn't it? However, there is a fly in the ointment, as Paul Krugman reported:

On Wednesday Treasury Secretary John Snow repeated that boast before a House committee. However, Representative Barney Frank was ready. He asked whether the number was adjusted for inflation; after flailing about, Mr. Snow admitted, sheepishly, that it wasn't. In fact, nearly all of the wage increase was negated by higher prices.
Okay, so how about those tax cuts. I mean, they must be responsible for the increase in federal revenues, right? Perhaps not, as Krugman explains:

About the Bush tax cuts: the tax cuts of 2001 evidently didn't do the job; these days, the Bush people talk about the economy as if history began in the middle of 2003, after their SECOND wave of tax cuts. But while the economy did start growing, finally, in 2003, the growth wasn't at all of the form you'd expect if tax cuts were responsible. The main tax cuts were on dividends and capital gains; supposedly this would make it easier for businesses to raise funds and invest. But business investment hasn't been the main driver of growth; in fact, businesses have been sitting on huge piles of earnings, reluctant to invest. Instead, the big driver was housing construction and consumer spending. So what really happened? Low interest rates led to a housing boom that eventually turned into a housing bubble. High house prices made people feel richer, and they could borrow against the increased value of their homes, feeding consumer spending. Tax cuts had nothing to do with it.
But the revenue growth! What about the revenue growth? Well, there is some, as one might expect with a slowly recovering economy. However, a significant part of the revenue growth in 2005 came from a business tax cut that expired at the end of 2004. (The administration takes credit for the revenue increase, but not the tax restoration that helped to produce it.)

They say a rising tide raises all the boats. However, as someone recently commented, the Bush administration has found a way to defy physics and create a rising tide that raises only the yachts.

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