Nobel Prize for Economics and Tax Cuts

This years Nobel Prize for Economics went to Edward Prescott and Finn Kydland "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles." These are two economists who have specialized in the area of how economic policy such as tax cuts affect the business cycle. Here's what Edward Prescott has to say about tax cuts:

Edward Prescott, who picked up the Nobel Prize for Economics, said President George W. Bush tax rate cuts were "pretty small" and should have been bigger.

"What Bush has done has been not very big, it's pretty small," Prescott told CNBC financial news television.

"Tax rates were not cut enough," he said.

Lower tax rates provided an incentive to work, Prescott said.

Prescott and Norwegian Finn Kydland won the 2004 Nobel Economics Prize for research into the forces behind business cycles.

The American analyst, who is a professor at Arizona State University and a researcher at the Federal Reserve Bank of Minneapolis, said a large tax cut in 1986 had lowered rates while collecting the same revenue.

But "in the early '90s the economy was depressed by the tax increase in '93 by about four percent, and it's right at that level now," Prescott said.

Bush, who is fighting to get re-elected November 2, has cut taxes by about 1.7 trillion dollars during his term.

The US leader accuses his Democratic rival John Kerry (news - web sites) of favoring tax increases, despite Kerry's promise to cut taxes for everyone earning less than 200,000 dollars a year.

So now we have an economist, who specializes in economic policy and won the Nobel Prize, who says that Bush's tax cuts were too small. There is now nobody with equal stature and specialization who takes the other side.