C.G. Eastabrook wrote:
> For my instruction, I'd be interested in list-members' views on the
> following:
>
> AMERICA CANNOT AFFORD TAX CUTS
> Op Ed by
> C. Fred Bergsten
> Director
> Institute for International Economics
>
> Published in Fianancial Times, January 11, 2001
>
> Like Ronald Reagan in 1981, George W. Bush takes office preparing tax
> cuts that will substantially weaken the US budget position. As with the
> Reagan tax cuts, Mr Bush's proposed fiscal loosening will have to be
> financed largely by foreign investors, owing to the very low rate of
> national saving in the US.
.
People like Bergsten are worried about low domestic saving. He would
probably like to see an increase in payroll taxes, to force workers to save
more, rather than a cut in income taxes.
Dean Baker says that if capital inflows halted, it wouldn't have much of a negative effect. The dollar would plummet, the current account would dramatically improve, which would add to output and profits, making up for some of the lost foreign savings. This is what the textbooks say but it seems too mechanical to me.
How do we know exports would improve with a shrunken dollar? How do we know it wouldn't just cause economic trauma and financial distress in the export-dependent provinces of the world?
Seth