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Akerlof calls Bush economic stimulus plan ‘horrendous’
Nobelist slams proposal’s ‘permanent’ tax cuts, foresees ‘extremely damaging’ federal deficits

19 February 2003



Peg Skorpinski photo

A full-page ad in the Feb. 11 edition of the New York Times proclaimed “Ten Nobel Laureates Say the Bush Tax Cuts Are the Wrong Approach.” Two of the Nobelist signatories were Daniel McFadden, director of the campus’s Econometrics Laboratory, and George Akerlof, the Goldman Professor of Economics here. They were joined by some 450 co-signers — economists from U.S. universities and tax-policy institutes — more than 10 of whom are also from Berkeley.

Akerlof recently sat down for a Q&A with the campus NewsCenter’s Bonnie Azab Powell to detail his objections to the president’s economic stimulus package, currently the focus of intensive study and debate. An excerpt from that conversation is reprinted here.

NewsCenter: Why do you feel it was important to sign the ad criticizing the economic stimulus package?

Akerlof: We shouldn’t call it a stimulus package until there is evidence to show that in fact it is a stimulus package. Right now there is no such evidence. It’s a horrendous bill. This must be well known by every single member of Congress, and I am sure that it is clear in the reports from the Congressional Budget Office, which has always done a good job. But the public does not seem to be aware of the extraordinarily serious consequences of this stimulus package.

The deficits being contemplated are out of sight. Each and every measure in this package contemplates long-term cuts in revenues, which means that the government will not have the revenues it needs to pay its bills. These bills fund extremely necessary things like Social Security, Medicare, and an effective military.
In addition there’s a grab bag of fairly small government expenditures, surprisingly small but nevertheless important, which includes such items as support for science, the justice system, Medicaid to help the disadvantaged, and some federal aid to education.

The budget deficits being contemplated are so very large and extend so far into the future that one doesn’t see how in fact these needs are going to be met.

These needs are only going to escalate as the baby boomers retire; more important than the population bulge, however, is the fact that people will be living longer and requiring more healthcare. The revenue will not be there over the longer term.

For the full text of the Akerlof Q&A, see http://www.berkeley.edu/news/media/releases/2003/02/12_akerlof.shtml