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Tuesday, June 20, 2006

The Economist Behind the Curtain

The recent failure in the Senate to repeal the estate tax stands as a rare victory for sane fiscal policy. The NYT editorialized about the event under the heading "What Passes for Good News."

In fact, the Senate vote came alarming close to ending a tax on inheritances of the richest half-a-percent of households, with a majority of Senators (57-but they needed 60 for a repeal) supporting a measure which would have cost the treasury $800 billion over 10 years at a time of ballooning budget deficits and war.

Of course, the politics of the repeal were the focus of most analyses-would the White House be adhered to or get rebuffed on an issue dear to them-but the economics of the tax cut are deeply revealing of the fundamental flaw of economic policy today.

And that flaw is this: we have, over the past three decades, shifted from we're-in-this-together (WITT) economics to you're-on-your-own (YOYO) economics.

For decades after the Great Depression, economics had two main policy goals: (1) ensuring that we as a society tap our collective potential and fully employ our economic resources, especially people, and (2) providing individuals with ample protections and publicly provided insurance against undesirable market outcomes-weak job creation, high unemployment, rising poverty rates, and falling real incomes-and other challenges like aging out of the workforce or becoming disabled.

This approach ran into trouble in the latter 1970s, when two villains who are not supposed to appear on the same stage-high unemployment and inflation-combined with another potent force to knock the dominant regime out of the box. That other force was the rise of "neo-classical" economics.
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read the rest here...

The Economist Behind the Curtain

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