ECONOMICS: The Democrats' Economic Problem
Wesbury, Brian 5o
R This is the crux of the Democrats' problem. They have no real framework for economic understanding. They have boxed themselves into a political and economic corner. One wall of the corner...
...In 2003, with a deficit of $374 billion, the belief was that the economy was driven ten-year Treasury bond yield has They have by demand-side stimulus...
...The stated reason is to close the deficit...
...Democrats have not learned and they all have a much bigger problem than they realize...
...Instead of attempting to take partial credit for Reagan's policies and the economic recovery so many thought would never come, Democrats shifted their thinking once again, creating the other wall and the floor of this self-made corner...
...R This is the crux of the Democrats' problem...
...Democrats instinctively gravitated to this philosophy...
...In this scenario, once the economy experiences a budget deficit, it will be driven into the ground in a neverending cycle of rising interest rates and deficits...
...It's not just the economy, stupid— it's the theory...
...1980, following the lead of a small This begs for an explanation group of economists (including Robert economic that has not been heard...
...from an ever-narrowing constituency, not generate a vibrant economy...
...into an economic 11.1 percent in the third quarter) malaise, and it took a brave Democrat framework for and the economy is accelerating...
...Every Democratic candidate for President wants to roll back part, or all, of the Bush tax cuts...
...averaged 3.96 percent, business Forty years of following this phi-no real investment is on the rise (growing losophy led the U.S...
...Senator Lloyd Bentsen (D -Tex...
...But in 1980, Ronald Reagan won the election on a supply-side platform and the rest, as they say, is history...
...Democrats came up with an ad hoc mixture of economic policies based on demand-side logic once again...
...The so-called "Rubin Doctrine" says deficits are bad (not good) because they "crowd out" private investment, increase interest rates, and therefore reduce demand...
...They have no real framework for economic understanding...
...Unfortunately, President Carter was unwilling, or unable, to grasp these ideas...
...But in the end, this would raise tax rates on small business owners, the ones who are creating new jobs today, and undermine the recent gains in employment...
...Deficits drive up interest rates, which cause the economy to slow, reducing tax revenues, driving up the deficit and therefore boosting interest rates all over again...
...One wall of the corner was drawn between the 1930s and the 1970s when the Democrats decided to embrace the Depression-era ideas of John Maynard Keynes...
...The But all of this logic is circular...
...Even Bill Clinton realized this when signing on to welfare reform and a capital gains tax cut in the middle of his Presidency...
...In So much for crowding out...
...Circular logic in an economic argument is a red flag that something is amiss...
...In 2000, the last year of the Clinton Administration, with the federal budget showing a $236 billion surplus, the ten-year Treasury bond yield averaged 6.03 percent and business investment started a two-and-a-half year slide...
...In addition, today's Democrats in Congress prefer tax rebates over tax rate reductions because tax rebates will be spent, providing a boost to the demand-side of the economy...
...The underlying motivation has nothing to do with creating wealth and everything to do with re-distributing it...
...The growth of the investor class in the past 20 years suggests that this strategy is a huge political mistake...
...A key rationale for this was pragmatic...
...Brian S. Wesbury is Chief Economist, Griffin, Kubik, Stephens & Thompson, Inc., a Chicago-based investment bank...
...In that paper the Democrat-controlled JEC argued for a "new era of economic thinking" and suggested a set of policies to enhance the supply-side of the economy...
...published a paper entitled "Plugging in the Supply- Side...
...The reason Bartley and Robert Mundell), the Joint is that Democratic economic theoEconomic Committee, chaired by ries are designed to gather support understanding...
...These proposed tax hikes would "crowd out" entrepreneurs and reduce incentives for taking risk...
...Keynes thought that the Depression was prolonged by excess savings and a reduced desire to spend...
...DECEMBER 2003/JANUARY 2004 THE AMERICAN SPECTATOR 53...
...to propose a way out of this morass...
...The tax system could also be used to tax the rich and give to the poor because the poor spent more of their income...
...Keynes's theories provided intellectual cover for deficit spending and income redistribution...
...Keynes supported deficit spending as a catalyst for economic growth...
...Not surprisingly, there has been a spectacular breakdown between the Rubin Doctrine and reality...
Vol. 36 • December 2003 • No. 7
