Policy Pickle

   The President-elect is promising lower taxes and higher spending, which he says will boost the nation's economic growth rate (GDP) to as much as 7 percent.
   Guess what? When you reduce revenue (lower taxes) and increase spending at the same time, the result is you go broke.
   Duh!

   It is also true, of course, that a country is not a company or a household, so many of the rules don't apply. It is possible, even useful at times, for government to indulge in deficit spending to help a stagnant economy. And, as another prominent Republican conservative said, "Deficits don't matter."
   But for all the noise being made about runaway government spending and the need for less regulation of business, one would like to think that they listen to what they are saying, and realize the consequences of what they do.
   One would like to think that. But one would very likely be mistaken.

   Meanwhile, the U.S. economy has been growing steadily, if not robustly, for several years, and the Federal Reserve Board has held to its target of a 2 percent growth rate as healthy and sustainable. Moreover, the Fed has been watching closely for signs of a growth spurt that could quickly cause problems, so it stands ready to contract the money supply and increase interest rates as its way of maintaining reasonable economic health.
   However, the incoming administration, which sets fiscal policy -- that is, taxes and spending -- has a different attitude than the Fed, which controls monetary policy -- the amount and cost (interest rate) of borrowing money.
   So the two agencies are on a collision course, with the federal government ready to accelerate economic growth through lower taxes, higher spending and less regulation, and the Fed as guardian of economic health, ready to put the U.S. on a monetary diet to prevent over-feeding.
   The question then becomes, who will win?
   The Fed has been an independent body since its inception, and its members cherish that role.
   Other Presidents have tried to intimidate the Fed into doing things their way, but have not been successful. Whether the new President attempts to overcome Fed opposition to his strategies by stacking the board with loyal cronies is an open question.