Friday, November 10, 2006

The Dems and Economic Policy

Well the good news from the 2006 elections is that we once again have a divided federal government with the Republicans in charge of the White House and the Democrats controlling both Houses of Congress. Over the past six years with the Republicans in control, federal spending has grown at unprecedented rates with outlays more than matching rapidly increasing tax collections driven by the healthy economy. The 2007 and 2008 gridlock will likely produce slower growth in federal spending with the Bush tax cuts locked in place at least until the 2008 elections. No Democratic presidential candidate in the 2008 elections wishes to run on a platform of raising taxes. Even Democratic Congressman Charlie Rangel, the incoming chair of the House Ways and Means Committee, can figure this one out.

The bad news is that the Dems are going to halt expansions in U.S. trade and may even rescind the trade gains of the 1990s. Since 1993 with the passage of NAFTA by a Democratic White House and Democratic Congress, the U.S. economy benefited mightily from rapid growth in trade. At the same time that U.S. exports have contributed to economic growth, imports have held inflation in check contributing to lower interest rates. Unfortunately, the post-2000 Democrats are not as smart as the Clinton Democrats and are now raising the anti-trade rhetoric. Driven chiefly by the demands of union leadership and the intellectually confused (ala Lou Dobbs), the Democrats will likely erect new trade barriers to protect the special interest groups that put them in office. Solid economic policy, in this case, does not mesh with political expediency.

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