Prescott on Bush’s fiscal policy

Edward Prescott, who picked up the Nobel Prize for Economics, said President George W. Bush tax rate cuts were “pretty small” and should have been bigger.

“What Bush has done has been not very big, it’s pretty small,” Prescott told CNBC financial news television.

“Tax rates were not cut enough,” he said.

Lower tax rates provided an incentive to work, Prescott said.

As spoken, I agree with the words. But I must wonder if negative numbers count as “pretty small”? We all know that Bush has shifted taxes into the future, not cut them. Government spending is a better (albeit still imperfect) measure of what government takes from the economy. And domestic spending is way, way up; read Alex here.

We try to vary our content on MarginalRevolution; still if there were one point that we would make every day, it would be this one. “It’s the spending, stupid,” you might say.

Prescott should not be blamed for any possible misquotation or removal from context of his words by the news media; if there is any economist who understands the difference between real and nominal variables, or the importance of intertemporal budget constraints, it is he. Here is the link.


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