Tag Archive 'Fiscal Policy'

Sep 01 2008

McCain and the Republicans: fiscal conservatives? Think again…

Published by Jason Welker under

Thanks to my friend Jerry from Shanghai for posting this cartoon to his Facebook profile!

How timely, just as my year 2 IB Economics class is studying the pitfalls of expansionary fiscal policy in times of economic slowdowns. Now, many critics would say that Clinton was the luckiest president of recent decades as he happened to ride a wave of technological innovation fueled by the internet that led to unprecedented grown in income and tax revenue during the 1990s. Sustained 5% growth combined with a period of relative peace on the foreign fronts in between the two Gulf Wars allowed Clinton to balance the budget and begin putting a dent in the country’s $3 trillion deficit during his final years in office.

Along come the “fiscally conservative” Republicans and their faithful leader GWB, just in time to evaporate our budget surplus and add $6 trillion to our national debt over the next eight years. Today, after a long period of “fiscal conservatism” the debt stands at $9.3 trillion, and last year’s budget deficit of $400+ billion broke a record for the largest gap between tax revenue and government spending in US history.

Yeah, you can blame it one the times: a War on Terror costing the US roughly a billion bucks a day, a slowdown in new technology creation, diminishing returns on internet investments, out-sourcing of American industry and jobs, yada yada… but the cartoon does hold some truth. The Democratic Party, long labeled as the “tax and spend liberals”, managed to do what few other administrations have done since the ’60s in balancing the budget, proving that the old stereotype is simply wrong.

Some now consider the Democrats the fiscally conservative party, based only on the simple observation that they tend to spend closer to what they collect in taxes. The Republicans, on the other hand, have had no qualms about spending what they DON’T collect in taxes, in other words, running up huge budget deficits through borrowing from the public and abroad. Are the Republicans the an even worse incarnation of the “tax and spend liberals”? Are they the “DON’T tax and STILL spend Conservatives”?

Discussion questions:

  1. How did the Bush administration’s $160 billion “fiscal stimulus package” that sent $600 checks to every American worker demonstrate the Republican party’s willingness to deficit spend.
  2. What effect will deficit spending by the government have on interest rates and private investment in the economy? What is this effect known as?
  3. In times of weak aggregate demand, as in the US earlier this year, what sort of approach would a “supply-sider” recommend as an alternative to Bush’s deficit-financed expansionary fiscal policy?

No responses yet

Jun 10 2008

Hunger, poverty and fiscal policy in the United States

Published by Michelle Close under

U.S. food stamp use up sharply, sign of hard times (Reuters) by Charles Abbott

27.88 million people in the US are going hungry this year. That’s 1.5 million more than last year. As food prices are rising all over the world, more low income families in the US are turning to the government for help.

In the US low incomes families and individuals can apply for food stamps. Food stamps are vouchers that can be used to purchase basic food items, milk, bread, eggs, cheese, chicken etc. These direct subsidies serve two functions, one is to feed more people and the other is to stimulate the domestic economy. With the unemployment rate at 5.5% and with inflation rising, everyone is affected but the poorest of the poor are most affected as they deal with these rising costs and shrinking incomes (less purchasing power).

“The record for food stamp participation is 29.85 million people in November 2005, which included emergency benefits to victims of hurricanes Katrina, Rita and Wilma, said USDA. Second-highest was 27.97 million people in March 1994, said the Food Research and Action Center, an antihunger group.”

In 2005 it was a major catastrophe that caused the jump in demand for food stamps. Today, the problem is much bigger, and broader. Rising fuel costs, rising costs of wheat, and the credit crunch are affecting businesses and businesses are beginning to lay off employees or are passing on their rising costs of production to the consumer, exacerbating rising inflation. So what can be done? Many people are encouraging Congress to take action.

“Now is the time for Congress to pass temporary increases in food stamps, extended unemployment insurance and other targeted relief that will stimulate the economy and help struggling families,” said James Weill, FRAC’s president. He pointed to May’s increase in unemployment, to 5.5 percent.

The Department of Food and Agriculture listed 1994 as the last time that 27 million people were using food stamps.

“Food stamp enrollment has exceeded 27 million people each month this fiscal year. USDA estimates enrollment will average 27.98 million people in fiscal 2009, which begins on October 1, at a cost of $40.3 billion.”

$40.3 billion dollars in government spending on food stamps alone seems like an enormous sum of money, but what is the alternative?

http://www.youtube.com/watch?v=BqmomJJ93Ps

Discussion Questions:

  1. What will be the affect of using expansionary fiscal policy at a time when inflation is already rising?
  2. How will increasing government spending on food stamps when the government is already running a budget deficit affect interest rates and private investment in the economy?
  3. What effect would expansionary fiscal policy have on aggregate supply if crowding-out of private investment occurs?
  4. How else could the government allocate the $40.3 billion it spends on food stamps to stimulate the economy and bring relief to the hungry poor? Brainstorm other policy options in your comments.

One response so far