Wednesday, November 29, 2017

Policy Mistakes

by Bill McBride on 11/29/2017 06:27:00 PM

Over the last 20 years or so, we've seen several policy mistakes. The worst, of course, was the decision to invade Iraq (I opposed the Iraq war, and was shouted down and called names like "Saddam lover" for questioning the veracity of the information). Note: I started this blog in January 2005, and one of my earliest non-housing posts was "A Desolation called Peace" (I'm still angry).

From an economic perspective, the errors include the failure to properly regulate the banks and mortgage lenders, the Bush tax cuts, the original TARP proposal, and some minor mistakes in 2009 like the homebuyers tax credit and "cash-for-clunkers". Also the premature pivot to austerity in 2010, and the failure to pass infrastructure spending programs in the following years, were clear policy mistakes.

We'd better off if we hadn't made these mistakes, but we survived.

The current tax cut bill is another clear policy mistake.

First, if we look at the business cycle and the deficit, economic theory suggests that the government should increase the deficit during economic downturns, and work down the deficit during expansions.  The economy is currently in the mid-to-late stage of a recovery, so decreasing the deficit makes sense now - not increasing the deficit.

Are there any fiscal conservatives left in the GOP?  There are definitely no deficit hawks!

Also, a key problem in the US is income and wealth inequality.   How does this bill address these issues?   It does the opposite.

 Oh well, it looks like the US is about to make another policy mistake that will have to be reversed in a few years.