The Prophecies of Richard Berner

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In a research note that’s been making the rounds of economics blogs this week, Berner declares that “America’s long-awaited fiscal train wreck is now under way.”

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By “train wreck,” he means out-of-control federal budget deficits that he’s sure will finally drag the economy under — as if we weren’t already feeling badly enough about its shaky state.

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[T]here are those who argue that tax cuts alongside falling interest rates are the proper pick-me-up for the economy. Federal Reserve Chairman Alan Greenspan seems game. He has endorsed tax cuts and took the benchmark Federal Funds rate down to 4% from 6.5% last December. … Adds Richard Berner, chief U.S. economist at Morgan Stanley: “These tax cuts are a big deal. The tax-cut train has left the station, and it is clearly going to be stimulative.”

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[The 2001 tax cuts] didn’t seem to help all that much. Formally, the recession ended in late 2001, but most labor-market indicators continued to worsen into mid-2003.