Against Budget Surpluses

I don't get it.

There was no change in fiscal policy from 1993 to 2001 (not exactly true, we did cut capital gains taxes, but no change in income taxes).

Is the problem that, as the economy grew, people got pushed into higher tax brackets? Even then, taxpayers aren't exactly worse off than they were before, because they are only paying higher taxes on the additional income earned.

Without a change in fiscal policy, I don't see how you could say that fiscal policy was too restrictive. If it was too restrictive in 2001, or 1998, then it was too restrictive in 1994. If so, then how the heck did growth become so strong in 1998?

How can you accomodate a large fiscal surplus? Just have the fed print more money. Seems simple enough.

>>How can you accomodate a large fiscal surplus? Just have the fed print more money. Seems simple enough.

Isn't that what the Fed did? Look at the liquidity going into Y2K. They had their monetary foot to the floor. And the pulled away the punch bowl shortly thereafter, causing the recession.

The 'recession' started in 2001, much closer to 9/11 than it did to the end of Clinton's last term. Pinning the blame on the Fed's reversal of their Y2K prep. is kind of hard IMO. Also the recession is part of the economy's normal boom-bust cycle. The 90's boom had to end sooner or later.

Arnold's original question is how could the gov't run surpluses without inducing a recession. The answer is easy, have monetary policy be loose enough to accomodate demand. Then the tight fiscal policy will keep inflation at bay.

It may be technically true that the 90's boom may have been slightly larger if the surpluses were eliminated by spending or tax cuts. The fact remains, though, is that over the long run the economy would be less efficient because of the drag caused by the debt that was allowed to go unpaid.

I read the article in the Journal, and I freely admit that I have no clue what this guy is talking about. I do not understand how federal debt can have a direct influence on household debt.

I suspect that I am not alone. Anyone else actually read the article and have a clue what he was talking about? Arnold?

Boonton, the first quarter of negative economic growth was the 3Q 2000. We had positive growth through 1Q 2001, then 2 quarters of negative growth. 9/11 had nothing to do with it, it was rising interest rates that burst the bubble.

I would be more likely to believe that the election fiasco brought down the economy than 9/11 (although 9/11 did retard growth, just not to negative levels).

I believe the 'official' definition of a recession is two quarters of negative growth in a row. I also have an older Economic Report to the President which says the economy was weak in 2001 but it probably would have recovered without a recession if 9/11 didn't happen. I pulled that quote out whenever I was debating Bush partisans who tried to claim Clinton gave Bush a recession.

The recession, IMO, was part of the normal business cycle. When the economy reaches a certain point it becomes very sensitive to the slightest tick that will send it into recession. I think looking for the actual trigger is less useful than understanding the overall dynamics of the economy. Avalances are caused by too much snow on a mountain. That one particular one was caused by a humming bird singing a bit too loudly doesn't help us much-IMO.

Simple! Cut Government spending. The drop in Resource prices will spur economic performance. Build an economic model predicated with one-half of current Government spending, then set in tax rates equivalent to those before Bush Tax Cuts, and use 1999 Productivity as a baseline. lgl