And now, Blinder and Zandi are playing the “it would’ve been worse” game that is almost impossible to disprove. Not surprisingly, this is exactly the same plan that the President and Democrats are wisely pursuing. It is not surprising that this study and those comments appear in the same week.
This is why the Op-Ed by the WSJ entitled, “The Democratic Fisc” is an important counterweight. The piece reviews the behemoth-like deficit numbers that the White House released late Friday. Then it compares/contrasts them with the Reagan deficits. “The Obama deficits are double that (of Reagan’s), and more than one-third higher than even the Gipper's worst year.”
However, it’s the future that the markets are concerned about and this is where the big disconnect comes between Reagan and Obama. The Reagan Administration’s policy choice was permanent across-the-board cuts in marginal tax rates. “Revenue didn't fall nearly as much as Keynesian economists predicted it would, and the economy roared back. Growth and spending restraint then reduced the deficit over time.” After 18 months, the Reagan economy returned to GDP and job growth.
This is what is troubling with the “spend-now-and-hope-things-improve” experiment. It has no thrust for restoring economic growth via incenting businesses to grow and hire through higher profits by lower taxes. Keynesians can rearview mirror all they want, but it’s what’s coming down the road that needs attention.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.