The Economic Outlook

The weakening economy has many Americans concerned. Professor Donald Smythe, who holds a Ph.D. in economics from Yale, believes that economic issues will figure more prominently in the forthcoming elections. "At this point," he says, "the economy is clearly deteriorating. The subprime loan crisis is obviously an important contributing factor and our short-run economic prospects will no doubt depend in part on how the Bush administration and the Federal Reserve respond to the credit crunch and the threat of a flood of imminent mortgage foreclosures.

"The federal budget deficit is not helping the credit crunch at all and it will probably receive wide attention after the primaries," predicts Smythe, who is currently researching the economic analysis of contract law. "The Democratic nominee will be able to attack the Republicans for a history of fiscal irresponsibility. There is more than a grain of truth to these criticisms. In recent history, Republicans have been more concerned about cutting taxes than they have been about balancing the federal budget.

"I think the country is more likely to continue running large federal budget deficits if a Republican is elected to the White House than if a Democrat is elected," Smythe continues. This would preclude any serious reform of healthcare and significantly reduce the likelihood of other new government programs, which a Republican administration would not be likely to pursue anyway, he adds.

"In all likelihood, Clinton’s or Obama’s fiscal policies would tend to be contractionary, at least in the short run, but they might also help give the Federal Reserve more room to respond to current macroeconomic pressures. The Bush Administration’s fiscal policies have placed a great deal of responsibility on the Federal Reserve but also made it more difficult for the Fed to do its job," Smythe says.