The Scary Side of Ben Bernanke
Bush should look elsewhere when Greenspan steps down.
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Bernanke recently weighed in with his opinions on the economy in the Journal, and while he lauded tax cuts, free trade, and legal reform, a supply-sider he is not. His views on how tax cuts impact the economy, his odd interest in demand charts, and not to mention his discredited beliefs about ?limits? to growth and ?full? employment, should have Bush supporters concerned.
About taxes, Bernanke spoke of ?fiscal stimulus? that has diminished ?in the past few quarters.? Bernanke is clearly in the Keynesian camp on taxes, holding that they should be reduced during times of slack demand and increased when economic growth reaches its natural ?limits.? While Keynesians see tax cuts through a demand-driven, short-term stimulus prism in which their impact gradually recedes, supply-siders encourage marginal rate cuts for their long-term (and continuous) incentive effects on economic activity. The distinction between the two schools of thought is crucial, particularly given the growing influence of the Fed on Capitol Hill.
Moving to the economic impact of demand, Bernanke asked how much demand in the latest quarter ?appears to have been satisfied out of inventories rather than from new production.? But supply-siders don?t even consider this ? they don?t because they know that products are ultimately bought with other products. ?Demand? will always exist, as human wants are unlimited. But what Bernanke deems ?demand? is in fact producers offering up their surpluses for those of others. In the supply-side model, what Bernanke sees as a fall in aggregate demand is in fact a fall in production ? something supply-siders agree results from governmental meddling along the lines of excessive taxation, regulation, and unstable money.