January 08, 2003

It is amazing how little the pundits know and understand about President Bush's economic views. Just a few days ago editorials referring to the Bush economic plan were speculating as to what the plan would and would not include. The editorials were almost in unanimous agreement that the President would have to "soften" his stimulus package. Among the softening options considered was the paring back to 50% the planned elimination of double taxation of dividends. Another possibility was to drop the plans to accelerate the marginal rate cuts for higher earners. Yet to the surprise (and perhaps disappointment) of many pundits the President went beyond what was originally expected. He proposed a larger program, with deeper cuts focused on individual rate cuts. How could the pundits have it so wrong? Our answer is that they were using the wrong framework to anticipate what the President would do. The pundits were using a Keynesian framework instead of a Supply-Side framework. They were focusing on the presumed income effect of the tax measures and their effect on the economy.

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