Obama’s big tent

It was good of the President to spend time explaining his economic package to Republicans,and to listen to their fears and alternative proposal. We can all learn sometimes from our political opponents.

The Reublicans have two main points of criticism of the package. The first is that tax cuts work more quickly at creating demand than federal programmes. They relieve pressure on family budgets and balance sheets and allow a more rapid adjustment from the heavily indebted consumer world of recent years. If you are going for a reflationary package it should have more income tax cut in it.

The second is that a large reflationary package will place immediate strains on government debt markets as the government seeks to raise all the borrowed money, and longer term strains on taxpayers who will have to pay it all back with interest. It is at best a paradox that a country needs a massive increase in its collective borrowing in order to tackle a crisis caused by borrowing too much in the first place. It may turn out to be a contradiction.

I doubt if the President can accommodate these two views sufficiently to satisfy sensible Republicans. He should not worry, nor should they. One of the main points about living in a democracy is the government should be tested and criticised by a democratic opposition. The Opposition should set out an alternative and be ready to take over if the government falls or gets it wrong.

In the UK the biggest mistakes have occurred when the main parties all agree. Lib Dems and Labour urged the Conservative government to adopt the Exchange Rate Mechanism, an economic policy which turned out to be a predictable disaster. The absence of strong Parliamentary opposition to the policy made it very difficult for us critics of the policy.

More recently Democrats and Republicans came together to support the first bank bail out package in the US, pushed through by a Rep[ublican President. It did not work and there have been several subsequent revisions. It is a pity more did not dig in and oppose it outright.

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3 Comments

  1. Will S
    Posted January 28, 2009 at 8:01 am | Permalink

    My God you get up early to write these! Much appreciated that you give your time to do this. However might I suggest that you put words through a spell check so you don’t end up writing about “Copnservatiove” governments. 😉

    On the subject of your point I agree entirely. As you said in your response to the Queen’s speech, it is of great advantage to ministers if they can be criticised by supporters and opponents on their proposed suggestions. And it is an intelligent government that not only allows it to happen, but seeks it to happen. May that kind of government come into being someday soon.

  2. TomTom
    Posted January 28, 2009 at 8:24 pm | Permalink

    The US could have a tax cut in the guise of making FICA contributions tax-deductible. The fact that social security charges come off net pay and the US system does not deduct spread over 12 months could improve cashflow

  3. Idle Pen Pusher
    Posted January 29, 2009 at 3:59 am | Permalink

    Take a look at this full page ad taken out by the Cato Institute, if you’ve not already seen it.

    Plenty of economists are not in favour of Obama’s spending splurge, despite what he says.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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