The Economic Effects of Long-Term Fiscal Discipline

Before the Reagan era (and sometimes after it) Republicans were the stewards of fiscal discipline, preaching the gospel of deficit reduction. Democrats were the Keynesian profligates, saying that deficits generally didn’t matter. Now the parties’ positions are (generally speaking) reversed.

The issue of deficit reduction is crucial to the question of whether Bush’s proposed tax cuts will boost or retard economic growth. A recent paper by William Gale and Peter Orszag, two economists at the Brookings Institution, concludes that the Democrats (and the pre-Reagan Republicans) are right: deficits can be very bad for the economy, and therefore the tax cuts are dangerous.

This report is an excellent primer for anyone wanting to get up to speed on the ideas at play in the tax-cut debate. [The Atlantic Monthly annotation]

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