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I would like to convince The News editorial writers that not every policy proposed by the Bush administration is flawed and cries for an alternative.

In the Jan. 27 editorial, "Greenspan and tax cuts," we read that if a recession threatens, "an interest rate reduction is generally considered to be more effective than a tax cut in heading it off."

The current principles of economics textbooks, which at any given time reflect what is "generally considered" by the majority of economists, present a different argument. It goes like this: Fiscal policy is very powerful, but it takes a long time to change it; monetary policy is less powerful and works with a variable lag, but it can be changed very quickly.

Monetary policy is used primarily for heading off inflation, while tax cuts and increased government spending are used to fight recessions. Moreover, sustained government budget surpluses exert a fiscal drag on the economy and slow it down.

If we are now facing merely a minor economic maladjustment, exacerbated primarily by stock market volatility, then an interest rate cut would probably suffice in righting the floundering economy.

If, on the other hand, we are witnessing the beginning of a potentially serious recession, then a substantial tax cut, or a substantial increase in government spending, or a combination of both are the proper policies.


Professor of Economics
Niagara University

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