Uncle Alan came swooping in to give the economy a post-election bump. A 50 basis-point cut in the federal funds rate has shocked us all. The breathless headline writer over at yahoo, desperate to pump this story up, reports that stocks have rallied. Well, as I predicted just a few minutes before (about the only thing I've gotten right lately) it caused a momentary surge, followed by a quick plunge, and last I checked stock prices are basically flat - rising less than a 1% at most. Well within the normal intra-day trading range. Perhaps the market had already factored in the Greenspan Effect and the Republican Sweep Effect - who knows? But in any case it's difficult to imagine that there's anything the Randroid-in-Chief can do at this point. The market isn't the economy and the economy isn't the market, but it definitely hasn't launched a wave of unquenchable optimism on the Street.
I'm always a bit amused by certain commentators who seem to think that Fiscal stimulus is "old fashioned Keynesianism" while Monetary Stimulus is... well, I don't know what. I think Good as opposed to Bad. The truth is, they're both old-fashioned Keynesianism as every former econ undergraduate who fondly remembers staying up late playing with their IS-LM curves should realize. Economists are all Keynesians now, broadly speaking, except maybe Wanniski, Gilder, and Friedman. We can debate the relative effectiveness of one or the other, and we should. Consumers are only maybe going to see slightly lower interest rates for home mortages, though even that is highly unlikely given that increasing deficits are driving up long term interest rates. It might help keep some automakers in their 0% financing programs for a little longer. But the only real possible channel for stimulus is the business investment channel. But, there too, it isn't clear that with substantial overcapacity and looming uncertainty there's going to be much of that either. Brad DeLong thinks it might help just a bit next (2003) Christmas. Couple more lumps of coal in everyone's stocking at least. Maybe it's time to start throwing money from helicopters.
But, never fear, President Cartman has a couple of cunning plans that seem to go over well with his libertarian-conservative base. One of which is -- government subsidized terrorism insurance! There's an idea. Actually, it may not be a bad one, but I'm glad people have come around to the possibility of serious market failure in insurance markets. Maybe we can start talking about health insurance... but I digress.
The other cunning plan is to make tax cuts that mostly come into effect years from now "permanent," including of course the estate tax. I'm not surprised this one is popular with his ideological base of course. I'm sure some unproductive junior members of the leisure class are pretty jazzed about it too -- a couple hundred of them more per year might just be able to never work again. Soon as Dad kicks off, anyway. As for the other tax reductions, I bet the 1% of the population that's going to find their wallets a bit fatter 3-4 years ago, if we're all still here anyway, are putting in their private jet orders as we speak. Or, perhaps ordering some tasteful knockoffs of Roman sculptures to put in the front lawns to replace the pink flamingos. Ah, the high class and refined tastes of the nouveau riche. Trailer trash with money. Shudder. Maybe they'll have the cleaning woman in a couple more times per week, too. Trickle down, trickle down.
Then there's the war. Hey, that seems to have maybe done the trick 60 years ago or so. Perhaps what's good for Halliburton IS what's good for America.
