Brookings: U.S. on Road to Bad Economic Health

[La_Serpiente]

U.S. on Road to Bad Economic Health

With an election looming, President Bush offers a rosy assessment of America's economic prospects in his Economic Report of the President, crediting his tax cuts for the nascent recovery. But even those who have prospered under President Bush's economic policies should worry about what lies ahead.

The real problem with Bush's policies may not be evident in this year's short-term economic trends. Even if the policies meet the administration's optimistic predictions, they come at the price of breathtaking deficits. The artificial stimulus of massive deficit spending will at best produce the equivalent of a crack cocaine recovery, giving the nation a temporary high while threatening serious economic ill health down the road. Moreover, to continue the analogy, the nation is building up an unhealthy addiction to foreign capital to finance its fiscal fecklessness. That makes this period of deficit financing starkly different than earlier episodes.

The federal budget deficit is about $500 billion a year, more than 4 percent of GDP and thus well above levels considered sound by the International Monetary Fund and the European Union. Bush may claim that growth is the key to reducing the deficit, and that lower tax rates are the key to growth. But even if one factors a reasonable recovery into the calculations, combined with Bush's desire to make tax cuts permanent and realistic projections of federal spending programs, our recent Brookings study suggests deficits will remain around 3.5 percent of GDP over the next decade and deteriorating thereafter as the baby boomers retire.

Many will argue—and we would agree—that the 9/11 attacks justify greatly expanded spending on defense and homeland security. But it defies both common sense and historical precedent that America would rely on foreign borrowing to shore up its national defenses. Yet that is precisely the logic of Bush's tax cuts. Nor is it reasonable to sustain massive deficits for many years just because the war on terror will take a long time to win. Certainly, the decades of Cold War engagement were not underwritten by such logic

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U.S. on Road to Bad Economic Health

[izzie]

1. I always thought the Republicans knew about money.

Every one in my family were small business men and they made a great deal of money.All were Republicans. And we were led to believe that about the party but I can not understand them at all and I hated Eco101.It looks to me like they want to bankrupt the country, get rid of SS and give the money to the rich and kill off the middle class. I do not understand this at all. We were the richest country in the world and had the greatest middle class with a small poor class. Why would we want to stop that? Why would the Republicans want to kill the goose that laid the golden egg? Who will buy what the rich make if we do not?

[yella_dawg]

3. My pet theory

is that the rich know about Peak Oil and are going about wiping out the consumption so that the Few will have energy for decades, if not centuries. You force the Goose to lay as many eggs as possible, then let is starve because there is a finite supply of corn and you need enough to make your corn muffins for the foreseeable future.

[Frodo]

2. THIS is what we need to be singing.

And about time too.