Brad DeLong hands skeptics of Bush's so-called economic planning all the ammo they'll ever need when confronted with citations of support from economists, administration officials, or editorial boards:
Were these people advocating this same position two, four, eight years ago, or have they just all of a sudden seen a blinding light? In this case, three years ago the Bush campaign was arguing that it was important to maintain a surplus--important, in fact to maintain a really big surplus, a surplus larger than the excess of Social Security taxes over Social Security expenditures. However, the Bush campaign said, we could afford a big tax cut and still have a really big surplus. The sudden, surprise emergence of the doctrine that it wasn't important to have a surplus because there is no downside to a deficit should make you suspicious. [Ed: Of course, just because someone is a long-time proponent of the Laffer curve doesn't make their economic outlook realistic; just consistenly unrealistic.]
Are these people assuming that supply curves don't slope upward (i.e., that increases in demand don't raise the price and that decreases in demand don't lower the price), or that demand curves don't slope downward (i.e., that increases in supply don't lower and that decreases in supply don't raise the price)? In this case, the market is the financial market--the market in which those who wish to borrow (firms that wish to invest and the government to pay its bills) pay (in the form of promising interest) those who wish to lend for the temporary use of their purchasing power. A government deficit increases the demand for loanable funds. If the supply-of-funds curve slopes upward, this should increase the price, and the price of loanable funds is the interest rate. (Oh, one time in a hundred you will find a market in which things are different, and in which simple supply-and-demand goes wrong. But be very suspicious of someone who says that he has found such a market and who cannot explain why it is an exception to supply and demand.
(continued in the next post)