USD College Republicans

Bush should follow Friedman, not Keynes

Bruce Bartlett has an excellent op-ed today in the Wall Street Journal.

Bartlett says that a one-time tax rebate, part of Bush's economic stimulus plan, won't work now because it didn't work in the past.
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"Thus Friedman predicted that the $100 to $200 checks disbursed by the Treasury Department in the spring of 1975 would have a minimal impact on spending, because they did not alter peoples' permanent income. Most likely, people would save the money or pay down debt, which is the same thing. Very little of the rebate would cause consumers to buy things they wouldn't otherwise have bought in the near term.

Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Friedman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut -- which would change peoples' concept of their permanent income -- of similar magnitude."
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Unfortunately, The New York Times still subscribes to the old Keynesian way of thinking.

I hope that Bush and his economic advisors wise up and realize that only permanent changes in the tax system rather than temporary rebates have the possibility of nudging us away from recession.

-Matt Hittle

Posted at 11:08AM Jan 19, 2008 by College Republicans in Economics  |  Comments[0]