Policies that didn’t help the economy recover from the Great Recession include tax credits for business investment and the first-time home buyer credit which didn’t exclude new homes as they incentivized new construction when there already was excess plant and an oversupply of vacant homes. The lesson; in recessions encourage households to spend on services, consumer goods and existing items with excessive inventories. Capital spending should be left to government.
Tag Archives: Fiscal Policy
Scary Savings
The latest economic treat, the budget deficit fell to just 4.1% of GDP in 2013, the lowest level since 2008. Revenues were 16.7% of GDP, while expenditures were 20.8%. Rising revenues accounted for 79% of the deficit decline in 2013. The trick will be getting the annual deficit below 2.5% of GDP. As long as it’s above that level, the debt will continue to rise as a percentage of GDP.
Monetary Medicine
Things can’t possibly be good when yesterday, in less than an hour, the ECB, The Bank of China, and The Bank of England all offered monetary medicine to the weakening global economy. Problem is, easier monetary policy won’t help much. What’s needed is stimulative fiscal policy. Separately, while US labor market conditions are worse than in Q1, they’re not terrible. Tomorrow’s employment report will show less than 125,000 new jobs.
Budget Brawl Begins
The budget battle over FY ’12 is here! The R plan makes big cuts to Medicare & Medicaid, ignores Social Security (SS) and keeps the Bush tax cuts. The D plan, will also ignore SS (2 risky) and will propose; cuts to many programs, reduction of popular tax deductions, increased taxes for the rich and lower tax brackets for most. The center of this debate will be the Bowles-Simpson report released earlier this year.