If you think the economy is struggling now - and if you don't, then you live in some alternate reality - then just wait until George W. Bush and the Fed get through throwing gasoline on the flames.

In ordinary economic times, putting more money in the hands of people means that more money gets spent on more things - so demand is spurred, resulting in more jobs, and the economy grows.  The rising tide may not lift all boats, but it at least lets people hold on to a bit of flotsam.  But we are not in ordinary economic times.

The proof comes in the results of recent attempts to expand our money supply.  Basically, there are three ways to accomplish this - governmental deficit spending, lower interest rates, and tax cuts.  Deficit spending under the Bush Administration has been the norm and interest rates have been cut - sometimes under emergency conditions - repeatedly over the last six months.  The result?  

Our GDP growth rate for the last quarter was about as anemic as is possible.  The rate of inflation - not counting food and energy - is rising.  Our economy has an illness, but more of what made it sick will only kill it faster.

The problem lies in the fact that food and energy are not being accounted for in the economic plans.  Food is excluded from inflation calculations because it is erratic under the best conditions.  Plus, food costs are especially susceptible to energy spikes - it's hard to get a tomato from Brazil to New York at $2 a pound.

Energy prices - specifically, the price of oil on the world market - is both a product and a part of the equation in US inflation.  World oil contracts are written in US dollars - so if the value of the dollar falls, the price of oil has to rise even if the entire rest of the market remains stable (an unlikely event).

But other events cause oil prices to rise - like declining Mexican production, unrest in Nigeria, a strike at the only refinery in Scotland, Russian attempts to nationalize parts of oil production fields, Chinese officials talking openly of selling dollars, and Iranian belligerence in the Gulf  - so that even if the value of the dollar remained constant, prices would rise because of legitimate fears of market disruption.  When both market conditions and US inflation occurs at the same time, the net effect is a runaway spike on oil prices.  As we have seen recently, sometimes the two can even feed off of each other.

So we are in an unusual economic time.  But, even with the "stimulus checks" in the mail, the Fed is expected to lower interest rates further.  This is only going to drive inflation higher - which will, in turn, cause the price of oil to rise, and then cause prices to rise again.  In less lofty terms, we're about to be backdoored without the benefit of lubricant.

There are already calls for the Fed to stop lowering rates.  But that misses the full equation, because it is not merely interest rates that are at work here, but the full effect of governmental actions that increase the money supply.  Higher interest rates and tax cuts actually work against each other.   One cuts the value of money and the other raises it. If we are going to call for the Fed to play fire department, the least we can do is stop asking George W. Bush to play with fire and matches.

Deficit spending is far too difficult to reign in to be a viable policy option - it will take something close to a decade of growth to bring that under control.  But it is possible to repeal the Bush tax cuts and choke off the flow of easy money to the investing class (or, it will be in about ten months).  Just as the tax cuts gave inordinate amounts of free money to the wealthy to dump in the economy, rationalizing the tax rates would take a large chunk of cash out of the economy without adversely effecting those at the bottom of the pay-scale.

Since our economy is not in a full-out recession, this could be enough to nudge the growth needle back up.  As the value of the dollar increased, it would counteract the geopolitical forces driving the cost of oil upwards, at least in part.  That would provide relief in both the energy and food markets and provide widespread economic relief.  Once Americans have extra money after paying their fuel and food costs, they will be able - and more than willing - to spend on other things.  That jump-starts the cycle of demand to jobs to growth to widespread well-being.

This is the drum that both Democratic candidates need to be beating.  Yes, let's repeal the regressive federal gas taxes - but only in conjunction with repealing the Bush tax cuts and - just perhaps - even implementing a temporary millionaire's tax on excessively high incomes.  What we are seeing now is the blatant warfare on the lower classes - and the upper classes are not suffering at all.


It is, after all, the economy, stupid.  But more importantly, it is that the economy has been - and is continuing to be - wrecked by ill-advised and immoral tax cuts for the wealthy.