So there may be some fiscal policy response, after all

According to Bloomberg,

President George W. Bush and Treasury Secretary Henry Paulson said that U.S. economic indicators are sending “mixed” signals and that they are considering whether a stimulus is needed.

“We’re all focused on this,” Paulson told the New York Society of Security Analysts. “This is a decision he still has to make,” Paulson said of the president, who told an audience in Chicago today “indicators have become increasingly mixed.”

“Become”? Meh. This is the man who Treasury-Secretary’d our way into this mess – God only knows how he interprets “signals”. Someone should ask him what sort of signal those CMO trades sends.

Oddly, though, he had this to add:

Paulson said he expected the economy would keep growing and suggested the administration wouldn’t rush to Congress with a fiscal stimulus plan.”Working through the current situation and getting the policy right is more important than getting the policy announced quickly,” he said.

“This economy is really quite resilient in the face of some pretty strong headwinds,” Paulson said. At the same time, he added that “the consumer is facing some real challenges right now – the housing downturn, energy prices, the unemployment numbers.”

The “resilience” crack is fine – it’s the extent of the job, in modern times, but “getting policy right”? – this would, of course, not include Monetary Policy. The policy known to have substantial long-term effects when used heavy-handedly. The policy we’ve all been black-mailing the Fed into using, successively, for the last few months because the Federal Government preferred to throw its spare hundreds of billions of dollars at the Defence Department.

So it looks like more (or making permanent the existing) tax cuts on non-labour income. With Public Debt now a tick above USD30,269.04 per citizen (Federal Debt less, but still over USD5tr overall), it would nevertheless appear that we’re about to blow – yet again – through the most recent debt limit increase – the limit now standing at USD9.8tr. The mere tanking of the dollar very likely brings us closer to that this year, without dropping more government income.

Do you live in New York City?

debt clock

According to Wikipedia, back in 2000 when the Debt Clock was de-activated people thought the debt was gone (it was still around USD5tr). Now, the clock is still going to go because it doesn’t have enough digits to show USD10tr in debt.

But back to the article. Former students will remember me harping on about the impossible job of the Fed, and the absence of fiscal policy (and why). Now talk of it emerges and I’m still not happy. Well (a) vegans can be miserable bastards, socialist scum-types doubly-so. More importantly, though, consider this:

Paulson said making permanent the tax reductions Bush implemented in 2001 and 2003 would “provide great relief” to investors. He acknowledged that it’s unlikely he will be able to convince a Congress led by Democrats who campaigned on pledges to reverse some of Bush’s tax policy to go along.

Tax cuts on non-labour income are regressive. They benefit people who make money from money, rather than money from labour – and you can guess how the ownership of capital is distributed. The people losing their houses will not benefit. The Waltons will be able to stick a few more masterpieces in their living room. National parks, public schools, city police departments, public housing – these will all feel the bite of cuts in government expenditure, as tax receipts decline in the face of a public debt larger than a lot of whole economies. Grover Norquist will be pleased.

My silver lining? The Batman comics for such an era ought to be pretty cool. It isn’t much.


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