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Politics and Economics

Wednesday, June 30, 2004
In the American Prospect today Matt Yglesias suggests that there is little that a President can do to affect the economy. Now while I generally agree with the thrust of his article, I think he is wrong on this point for a couple of reasons.

You might argue that Presidents are too dependent on Congress to effect the economy. However, Presidents can shape economic policy when they control Congress. So Bill Clinton deserves credit for any benefit derived from his 1993-94 fiscal policy, Reagan from his 1981-82 policies (he had working control of the House because of the Boll Weevils), and Bush for the entire four year term.

More importantly, Matt is missing the crucial importance of fiscal policy on the state of the economy. Short-term deficits can help boost demand, while large structural deficits can result in a rise in interest rates and a decline in the currency. Also, the nature of the tax burden can effect economic growth. The problem with the Bush tax and spending cuts is that it has shifted the economic burden onto the middle class consumers, who are the main engine of economic growth.

So I would contend that the Presidents are not just prisoners of the business cycle. When they can get their hand on the fiscal policy tiller, have a real ability to help the economy, or drive it into the ground. We should hold Bush accountable. Democrats are better stewards of the economy because our policies are not only fairer, but more effective. We should not be afraid to say so.
Posted by Arbitrista @ 3:23 PM
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