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Thursday, March 03, 2005

The Fed Agrees: the New York Times is Nuts

Socialist economic theory gets it wrong, as usual.

Hewing to the liberal-socialist line propounded by John Maynard Keynes, John Kenneth Galbraith, and now Paul Krugman, the New York Times editorial board recently attacked President Bush’s tax cuts anew.  Tax cuts, they insist, cannot possibly have boosted the economy.  Only more government spending, financed by higher taxes, can bring prosperity.

In addition, the Times rallies the forces of liberalism against private Social Security accounts.  People who are not totally dependent upon the Federal government can’t be trusted by the bureaucrats.

Tax cuts, as every liberal-socialist knows, are anti-social, possibly even crimes against humanity, because they weaken the power of collectivized government to control people’s lives.  If you can keep more of your money, you have greater freedom of personal choice.  No liberal-socialist state-planner is prepared to trust an individual like you to do the right thing.  As Bill Clinton said when he rejected tax cuts early in his first administration, if the government cut taxes, the people would just spend the extra money on the wrong things.

To support this basic tenet of the socialist religion, the Times editorialists made some very fearful predictions, as noted in New York Times Editorialists Wrong As Usual:

“For all its talk of deficit reduction, President Bush’s 2006 budget is a map of reckless economic policies and shows how they have backed the United States into a precarious position in the global financial markets.  Mr. Bush needs to convince foreign investors that he’s serious about cutting the budget deficit. Here’s why: Each day, the United States must borrow billions of dollars from abroad to finance its enormous budget and trade deficits. Without a steady stream of huge loans, the country would face rising interest rates, higher inflation, a dropping dollar and slower economic growth…..

“The global financial community won’t be fooled. The dollar may have bouts of relative strength, as it has recently. But these are due largely to currency traders’ focus on short-term advantages, like Federal Reserve interest-rate hikes, which are perceived as a positive for the dollar, or the appearance of profit-taking opportunities. Inevitably, the budget and trade deficits will reassert their drag on the dollar, and then on Washington’s ability to comfortably borrow money from abroad.”

Today’s Wall Street Journal carries an article reporting the Federal Reserve’s precisely opposite conclusion, based on studying facts, rather than gazing at Marxian tea leaves in a Soviet tea cup.

In Currency Drop Doesn’t Mean Crisis:  Lowered Dollar Is Likely To Spur Economic Growth, Fed Says in Deficit Study, reporter Greg Ip writes:

“A drop in the dollar is unlikely to trigger a financial crisis and in fact is more likely to boost economic growth, a new study from the Federal Reserve suggests.

“The study responds to growing concerns that the U.S. current-account deficit—the shortfall on all trade and investment income with the rest of the world—could trigger a crisis. The deficit topped an estimated $600 billion, or more than 5% of gross domestic product last year, which was financed by the U.S. selling an equivalent sum in stocks, bonds and other assets to foreigners. Some analysts worry that foreigners will soon balk at buying more U.S. assets, triggering a sharp drop in the dollar, a drastic increase in interest rates, and a recession.

“But the study finds almost no evidence of such “disorderly corrections,” the phrase it uses rather than “crises,” in its review of previous episodes when the U.S. and other countries had to shrink large deficits. “We ... find no evidence that current account reversals are associated with sharp declines in asset prices,” says the study, posted this week on the Fed’s Web site.”

Posted by Thomas E. Brewton on 03/03 at 10:59 PM
Economics • (0) Comments
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