Every once in a while I find one of the rants by people who have a knee-jerk Right wing reaction to whatever goes on too provocative to resist answering. This is particularly true when they reflexively use the standard talking points of their brethren. The latest of the Right talking point appears to be to to hold Communist China as the model we should emulate.
Thus on March 20, 2009 there appeared in my local newspaper, the Fort Lee Suburbanite, the following Letter to the Editor:
"The Chinese communist government has it right. As a result of the global economic slowdown, they have reduced individual taxes and cut wasteful spending. There is no tax on the net profits of private businesses.
The government even cut taxes in half on small cars and that act resulted in a sales gain of 25 percent in its first four months of operation. Cutting taxes in the appropriate manner generates economic growth. JFK advocated the same program before his assassination and it worked. He even wanted to abolish the Federal Reserve System because he felt it was detrimental to the economy of the country.
"The present stimulus package does nothing to stimulate the private sector to generate jobs for the unemployed. In fact, it only enables government to expand and government expansion always means a greater tax burden for those who are employed.
"What ever happened to that old philosophy concerning teaching someone to fish rather than giving them fish as charity? There is nothing in this stimulus legislation concerning re-training those who have lost jobs for the future employment. New technology demands trained workers.
"The first stimulus bill, when President Bush was in office, provided families with money but did little to stimulate business. Most of the recipients paid bills with their newfound cash and there was little demand for increased supply. How easily we forget.
"Giving money to the states diminishes the responsibility of state governments as well as their relationship with the federal government.
"There were states, then called colonies, before there was a federal government. Our country is composed of "United States.” The Constitution guarantees certain states rights. If state governments would have had balanced budgets, they would not need any assistance from the federal government. If the voters of a state enable it to overspend then they must suffer the consequences.
"Congress has long forgotten their role as delineated by the Constitution of these United States. They have abused the "general welfare" clause year after year. That clause enables Congress to spend money for the "general welfare" of the country ... not for particular pork items that concern a state, a city, a municipality, and a pet project. Congress has also encroached on the domain of the President and the Supreme Court by passing laws that on their face violate the U.S. Constitution. Congress has limited power, as does each of the three branches of the federal government. Throughout our country's history, Congress has enacted legislation that clearly should have been vetoed by various Presidents, but because of party affiliation, were signed into law.
"It is also amazing that those in power today want to limit the salaries of those who generate jobs in various industries, but are silent regarding the ridiculous salaries paid to professional sports figures.
"How do we, as a society, pay a ballplayer 10 million dollars a year and a teacher under 50 thousand dollars a year? Who has the greater influence on our youth? We have lost our values as a society!
"The current stimulus bill stimulates government and little else. It illustrates that Congress has lost its way and that this President is no improvement over the previous one regarding the economy. By the way, who is financing all of the president's czars and committees and the results of his Presidential orders? I thought Congress controlled the purse strings of the federal treasury ... by law!"
I did not respond until April 4 because there were other topics I wanted to address. But on this date my letter in response was published, which took the writer to task as follows:
"Mr. Haas (Letter to the Editor of March 20) denounces President Obama's stimulus package, but he is so unacquainted with the facts, or worse has so little regard for them, that for him to spread such misinformation is a disservice to your readers. Mr. Haas holds up Communist China as the example we should be following as a country that passed no stimulus, somehow failing to tell us that China, in fact, passed a massive stimulus package. According to Forbes of November 9, 2008, "Four trillion yuan ($586 billion) will be spent (by the Chinese government) on upgrading infrastructure, particularly roads, railways, airports and the power grid; on raising rural incomes via land reform; and on social welfare projects such as affordable housing and environmental protection."
"As for cutting taxes, Mr. Haas forgets to mention that 1/3 of the Obama stimulus bill is directed to tax cuts, while China only lowered transaction taxes, reducing down payments and lowering mortgage rates and it is cutting the tax on little cars, hardly comparable to the much more extensive tax cuts in the Democratic stimulus package, Mr. Haas decries. As for the vaunted Kennedy tax cut, it was similar to the Obama tax cut and was intended to stimulate demand. It was not, as he and his Right wing cohorts would have us believe, a supply side tax cut.
"Mr. Haas than brings out a commonly spread lie, (actually usually spread by the far left as part of the assassination conspiracy theory) that JFK wanted to abolish the Federal Reserve System, for which there is no evidence, and which would have been a disaster in any case, the Fed being a major bulwark in preventing the complete collapse of the US and world economies. This distortion had its genesis in Kennedy’s Executive Order 11,110, which did not (as is usually suggested) create new authority to issue additional silver certificates. In fact, its intention was to ease the process for their removal, so that small denomination Federal Reserve Notes could replace them in accordance with a law Kennedy himself signed. If Kennedy had really sought to reduce Federal Reserve power, then why did he sign a bill that gave the Fed still more power?
"Mr. Haas then goes on to claim that; "the stimulus package does nothing to stimulate the private sector to generate private jobs for the unemployed.” What nonsense! When consumers have money and spend it, they obviously create demand for goods produced by the private sector, which creates jobs in that sector, and when the money is giving to those who have the least, they are the most likely to spend it quickly rather than save it, because their need for food, shelter and the necessities of life are pressing.
"Mr. Hass' admiration for China is instructive, for China has no safety net, no unemployment insurance, no Social Security, no old age pensions and the average Chinese worker in the textile and agricultural industries earns less than 20,000 yuan per annum (2,849 U.S. dollars).
"Finally Mr. Haas rants about States over-spending, choosing to ignore that the crisis extends to all states, whether Republican or Democratic, and is caused by the failure of tax receipts caused by the recession.
"He complains about teachers being underpaid, a sentiment I share, but forgets that paying teachers more would increase state and local expenditures, something he rants against.
"As for excessive salaries paid to professional sports figures, he forgets, or ignores, that this is the private sector, which he extols, and where he and I should be able to agree that it should not be subject to government interference.
"Neither accuracy nor consistency, are Mr. Haas' hallmark, which is why I rarely respond to his diatribes."
Unfortunately, I think for him, my adversary did not know enough to leave well enough alone and wrote this rather whiny letter.
"I do not know Mr. Scheller. I do not know anything about him other than what he writes in his letters to the editor. I do know that he hopes I do not respond to his left-wing professions of "facts:' On April 15, the people will have demonstrated their feelings about the President's stimulus package.
"Since when does $586 billion equal over $3 trillion? Has he been to China lately to see the rapidity of the upgrading of the infrastructure? How do you generate the greatest debt in American history and promise tax cuts? President Kennedy's tax cuts worked. As for the Federal Reserve, Mr. Scheller is in error. President Kennedy signed an executive order abolishing that board because he deemed it not in the best interests of the citizens of our country.
"If Mr. Scheller would read about the founding of that Board and its negative impact on our economic foundations, he would join hundreds of economists who echo my sentiments. Do we Americans want our money supply run by people who are not accountable to anyone but themselves?
"Mr. Scheller ignores the growing number of unemployed and their dependence on government funds. The "consumers" have no money until they have jobs. Government generated jobs cost taxpayers. What President Obama wants to do is take money from the producers and give it to the consumers. That will create demand by the consumers, but omits the fact that if the producers now lack adequate funds, how do they produce? Is the government now going to be in the production business?
"State governments are responsible for their own problems. They overspent in the "good times" way before our present economic crisis. Those states who have extended citizen's rights to illegal immigrants are suffering the most. The recession has added to the negativity of their situation.
"Teachers are underpaid. Professional athletes are overpaid. Somewhere we, as a society, have lost our sense of values. It is interesting that Mr. Scheller states that professional sport figures are the result of the private sector and teachers' salaries depend on the government sector. That disparity illustrates that the private sector generates more income than the government sector and that greater income increases greater consumption, which increases the need for more jobs. That greater income also increases the taxes paid to city, state, and federal governments.
"I am consistent in my belief in the capitalistic society. I am consistent in my belief that Congress has and is violating its constitutional obligations. Pork-barrel spending does not have a constitutional basis. The clause of the Constitution for "good and welfare" mentions for ALL the people. Spending on particular city or particular state projects is not for the benefit of ALL the people of the United States!
"I am consistent in my belief that both political parties are lead by those who do not truly represent the desires of the citizens of this country. I am consistent in my belief that changing the name of someone or of some action or some entity does not change the person, or the act, or the entity.
"I am consistent with the fact that I am, despite Mr. Scheller's opinion, consistent with the facts."
Showing posts with label Stimulus Bill. Show all posts
Showing posts with label Stimulus Bill. Show all posts
Tuesday, April 21, 2009
Thursday, April 09, 2009
Too Much Too Soon?
“Too much too soon” is increasingly the cry of those who like the status quo, and they have succeeded in raising doubts in the minds of some who don’t necessarily like the status quo, but who have been impressed with the argument that dealing with the economy should be first, foremost and the sole concern, and are frightened by the projected deficits.
Their concern is understandable but misplaced. First of all there is a basic principle here and it applies not only to government debt, but to private and business debt as well, and that is that borrowing to meet daily expenses over time, is a recipe for disaster. But borrowing for capital expenditure is not only wise but a necessary part of assuring the future. A business that does not borrow in order to be able to purchase more efficient equipment is doomed to fail in the the competition of the market place. The US is now in a position of such a business. It must modernize, and borrowing for that purpose is a legitimate and necessary exercise. Investing in an efficient health care system, in education and in stopping the inexorable advance of global warming by reducing noxious particles in the atmosphere, which incidentally also effect health, are investments that will pay dividends may times over. They are investments. they are not expenses.
Dealing with the economy requires action on many fronts, from dealing with the banking crisis, to regulatory reform. But a large part of it is to stimulate the economy by way of injecting government funds to grease its gears.
There are many ways to do this. We can give tax cuts to those who are fortunate enough to still have an income, in the hope that they will spend the money, thereby creating demand, which has fallen drastically in this recession. The enacted Stimulus Bill does this. However, this may or may not be effective, because past experience has shown that in a time of anxiety people spend as little as possible, and if they unexpectedly have an increase in their income, they tend to save it or pay of debts. Nevertheless, it is part of the package.
Spending, however, in ways that create or save jobs is far more effective because that puts money in pockets that might not have enough for the necessities of life, and when the means to meet basic needs becomes available, it will be spent. But this can be accomplished even without creating jobs, for we can pay extended unemployment insurance, and the bill provides for this, or we can create useless jobs which is better than simply distributing cash, if for no other reason than that people have far more self-respect when they are “gainfully” employed.
But as I set forth in my essay entitled The Stimulus Bill, we can get the greatest gain for the buck when we employ people to do useful work, because here we have a huge multiplier effect. I cited how even doing something as mundane as reseeding the Capitol lawn can have a very good multiplier effect.
But even better then seeding a lawn, are things that have a really long lasting benefit, such as repairing our infrastructure and improving it. The highway system built by the Eisenhower Administration has served the nation well for all these years, but it is now antiquated and in desperate need of repair. When bridges are falling down, it is obvious that something needs to be done, even if the stimulus were not needed.
But we can no longer depend entirely on highways and airplanes to meet our transportation needs. Most of our competitors in the industrialized world are well ahead of us in having high-speed rail. Our need for this is way overdue and the stimulus bill provides funds for getting a start on this. Unfortunately, like everything else that meets the needs of the Nation, the naysayer targeted this for denunciation, describing it as a boondoggle, for a train between Disney-Land and Las Vegas, and then going so far as to describe it as a train going to a brothel in Las Vegas. A look at the proposed train routes published by the Department of Transportation shows no such plans.
But this is not the only example of stimulating the economy and getting long-range benefits. We can get a start on Health Care Reform by immediately investing in computerizing our health records and in other aspects of Health Care Reform, which can be funded quickly. Other reforms, which may not be possible until later years, will make sense in one of two ways. If the economy has not yet recovered, the spending on such reforms will act as a needed continuing stimulus. If the economy has recovered, tax receipts will have increased and the money for such reforms will be available. But say its critics, even if the economy is on the mend, it is likely that the amount expended will not equal tax receipts, and the deficit may as a result endanger the soundness of the dollar. This is a legitimate concern, particularly if the deficit turns out to be as large as is projected by the CBO (Congressional Budget Office) rather than by the OBM (Office of Budget and Management). But what are the alternatives, to leave the present system, which is bankrupting the country in place? I am reminded of the Harry and Louise ads, which warned of dire consequences if the Clinton Health Insurance plan were adopted. All the consequences of which these ads warned, in fact happened because no health plan was adopted. As a result of the status quo our choice of providers has drastically declined, as many Insurance Companies require that we go only to in-network providers. Not only have more and more Americans become uninsured (nearly 46 million Americans, or 18 percent of the population under the age of 65, were without health insurance in 2007, according to the latest government data available, but even the insured often find that they are refused coverage when major expenses arise, with the insurance companies claiming pre-existing conditions. According to the journal Health Affairs, medical bankruptcies affected about 2 million Americans annually, -- counting debtors and their dependents, including about 700,000 children, as of 2001, and things have gotten much worse since then. “Surprisingly, most of those bankrupted by illness had health insurance. More than three-quarters were insured at the start of the bankrupting illness. However, 38 percent had lost coverage at least temporarily by the time they filed for bankruptcy.” The result is not only individual tragedies, but the cost borne by our whole economy, since far too many cases are handled in emergency rooms, which is far more expensive to society, as is the lack of preventive care. Corporations, who have until now borne the cost of health insurance for most working Americans, can no longer afford it. In other words doing nothing or even delaying is not an option. It is a recipe for disaster. Whatever the risks of moving forward may be, the failure to act is not a risk. It is a prescription for guaranteed disaster.
This applies to an even greater degree when it comes to global warming. Ice caps are melting at a faster rate than anyone predicted. If nothing is done much of Florida and other areas of the US will be under water and the total land mass wiped out will cause a refugee problem that would make today’s migration seem puny by comparison.
But even without the threat of global warming the way we generate energy today, with reliance on coal and other fossil fuels, is inefficient and a threat to our national security. If we are to be competitive in the world economy, we must be in the vanguard of this development. We will be the innovators, or others will be. We will be exporting this technology or we will be importing it. We will create jobs in developing, building, and using this technology, or we will ship jobs to other countries, which have overtaken us.
Ditto for education. We have been the successful economic powerhouse, which we have been, because we have had one of the most educated workforces in the world. If we fall behind, and we have already fallen behind, we will not be able to compete on the world stage, and in a globalized economy we must, more than ever, compete.
So the question is not, can we afford to do these things? The question is can we afford not to do them? The clock is ticking! We cannot fail to act. We dare not delay. There are risks in acting. There are certain disasters if we fail to!
Their concern is understandable but misplaced. First of all there is a basic principle here and it applies not only to government debt, but to private and business debt as well, and that is that borrowing to meet daily expenses over time, is a recipe for disaster. But borrowing for capital expenditure is not only wise but a necessary part of assuring the future. A business that does not borrow in order to be able to purchase more efficient equipment is doomed to fail in the the competition of the market place. The US is now in a position of such a business. It must modernize, and borrowing for that purpose is a legitimate and necessary exercise. Investing in an efficient health care system, in education and in stopping the inexorable advance of global warming by reducing noxious particles in the atmosphere, which incidentally also effect health, are investments that will pay dividends may times over. They are investments. they are not expenses.
Dealing with the economy requires action on many fronts, from dealing with the banking crisis, to regulatory reform. But a large part of it is to stimulate the economy by way of injecting government funds to grease its gears.
There are many ways to do this. We can give tax cuts to those who are fortunate enough to still have an income, in the hope that they will spend the money, thereby creating demand, which has fallen drastically in this recession. The enacted Stimulus Bill does this. However, this may or may not be effective, because past experience has shown that in a time of anxiety people spend as little as possible, and if they unexpectedly have an increase in their income, they tend to save it or pay of debts. Nevertheless, it is part of the package.
Spending, however, in ways that create or save jobs is far more effective because that puts money in pockets that might not have enough for the necessities of life, and when the means to meet basic needs becomes available, it will be spent. But this can be accomplished even without creating jobs, for we can pay extended unemployment insurance, and the bill provides for this, or we can create useless jobs which is better than simply distributing cash, if for no other reason than that people have far more self-respect when they are “gainfully” employed.
But as I set forth in my essay entitled The Stimulus Bill, we can get the greatest gain for the buck when we employ people to do useful work, because here we have a huge multiplier effect. I cited how even doing something as mundane as reseeding the Capitol lawn can have a very good multiplier effect.
But even better then seeding a lawn, are things that have a really long lasting benefit, such as repairing our infrastructure and improving it. The highway system built by the Eisenhower Administration has served the nation well for all these years, but it is now antiquated and in desperate need of repair. When bridges are falling down, it is obvious that something needs to be done, even if the stimulus were not needed.
But we can no longer depend entirely on highways and airplanes to meet our transportation needs. Most of our competitors in the industrialized world are well ahead of us in having high-speed rail. Our need for this is way overdue and the stimulus bill provides funds for getting a start on this. Unfortunately, like everything else that meets the needs of the Nation, the naysayer targeted this for denunciation, describing it as a boondoggle, for a train between Disney-Land and Las Vegas, and then going so far as to describe it as a train going to a brothel in Las Vegas. A look at the proposed train routes published by the Department of Transportation shows no such plans.
But this is not the only example of stimulating the economy and getting long-range benefits. We can get a start on Health Care Reform by immediately investing in computerizing our health records and in other aspects of Health Care Reform, which can be funded quickly. Other reforms, which may not be possible until later years, will make sense in one of two ways. If the economy has not yet recovered, the spending on such reforms will act as a needed continuing stimulus. If the economy has recovered, tax receipts will have increased and the money for such reforms will be available. But say its critics, even if the economy is on the mend, it is likely that the amount expended will not equal tax receipts, and the deficit may as a result endanger the soundness of the dollar. This is a legitimate concern, particularly if the deficit turns out to be as large as is projected by the CBO (Congressional Budget Office) rather than by the OBM (Office of Budget and Management). But what are the alternatives, to leave the present system, which is bankrupting the country in place? I am reminded of the Harry and Louise ads, which warned of dire consequences if the Clinton Health Insurance plan were adopted. All the consequences of which these ads warned, in fact happened because no health plan was adopted. As a result of the status quo our choice of providers has drastically declined, as many Insurance Companies require that we go only to in-network providers. Not only have more and more Americans become uninsured (nearly 46 million Americans, or 18 percent of the population under the age of 65, were without health insurance in 2007, according to the latest government data available, but even the insured often find that they are refused coverage when major expenses arise, with the insurance companies claiming pre-existing conditions. According to the journal Health Affairs, medical bankruptcies affected about 2 million Americans annually, -- counting debtors and their dependents, including about 700,000 children, as of 2001, and things have gotten much worse since then. “Surprisingly, most of those bankrupted by illness had health insurance. More than three-quarters were insured at the start of the bankrupting illness. However, 38 percent had lost coverage at least temporarily by the time they filed for bankruptcy.” The result is not only individual tragedies, but the cost borne by our whole economy, since far too many cases are handled in emergency rooms, which is far more expensive to society, as is the lack of preventive care. Corporations, who have until now borne the cost of health insurance for most working Americans, can no longer afford it. In other words doing nothing or even delaying is not an option. It is a recipe for disaster. Whatever the risks of moving forward may be, the failure to act is not a risk. It is a prescription for guaranteed disaster.
This applies to an even greater degree when it comes to global warming. Ice caps are melting at a faster rate than anyone predicted. If nothing is done much of Florida and other areas of the US will be under water and the total land mass wiped out will cause a refugee problem that would make today’s migration seem puny by comparison.
But even without the threat of global warming the way we generate energy today, with reliance on coal and other fossil fuels, is inefficient and a threat to our national security. If we are to be competitive in the world economy, we must be in the vanguard of this development. We will be the innovators, or others will be. We will be exporting this technology or we will be importing it. We will create jobs in developing, building, and using this technology, or we will ship jobs to other countries, which have overtaken us.
Ditto for education. We have been the successful economic powerhouse, which we have been, because we have had one of the most educated workforces in the world. If we fall behind, and we have already fallen behind, we will not be able to compete on the world stage, and in a globalized economy we must, more than ever, compete.
So the question is not, can we afford to do these things? The question is can we afford not to do them? The clock is ticking! We cannot fail to act. We dare not delay. There are risks in acting. There are certain disasters if we fail to!
Wednesday, March 04, 2009
The Stimulus Bill
How did we get from there to here? How did we get from the booming economy of the Clinton years to the collapse of the economy in the eighth year of the Bush Administration?
It really all began during the Clinton Administration. Clinton had proved that not all tax cuts are stimulative and not all tax increases dampen economic activity. As the bible says (Ecclesiastes 3) and Pete Seeger made famous, “There is a time for everything, and a season for every activity under heaven:”
That is a lesson that the minions of the Republican Party have not learned or as has often been said about them, “They have never forgotten anything and they have never learned anything.”
They are wed to the proposition that taxes need to be cut all the time, and never, never raised. When Clinton proposed raising some taxes on the rich, the economy that he inherited from Bush pére was in the doldrums but interest rates set by the Fed were high. Clinton reached an agreement with Fed Chairman, Alan Greenspan, that if he reduced the deficit the Fed would lower interest rates. The result was a booming economy and a booming stock market. In fact the stock market entered a period of such an exaggerated boom that it caused Greenspan to coin the now famous phrase, “irrational exuberance", but he did nothing about it despite the fact that it was obvious that the stock market boom was caused by rampant speculation fueled to a large extent by buying on margin, i.e. using borrowed money to speculate in the market, or as it is called “leveraging” ones investments. The Fed has the power to raise or lower this requirement (see here) but Greenspan in keeping with his then philosophy of believing that the markets regulate themselves left the market to its own devices.
I believe that set the tone for the Bush fils eight years of wild speculation by the banks at unheard of levels of leveraging their loan portfolios. At the same time, following the policy that all tax cuts are good, these years brought about some of the largest tax cuts ever, leading to huge deficits, which were defended in the words of V-P Dick Cheney, “Reagan proved deficits don’t matter” and with the enthusiastic support of the Republican party in Congress.
What a change an Administration makes. Now, suddenly running up deficits, say Republicans, is “generational theft.” But are they really concerned with deficits even now. They agree that we need to stimulate the economy, and they agree that reducing the deficit now is the wrong prescription, but they want to do it with more tax cuts for, you guessed it, the wealthy. They don’t want to “redistribute wealth” after having presided over the greatest redistribution of wealth upward, toward the wealthy, in the history of the US. As a matter of fact the wealth redistribution upward began in the Reagan years. In 1980 the top 10% of households accounted for 33% of total household income. By 2000 this group accounted for 44% of total household income. Today the top 1% of households receives more pretax income than the bottom 40% and the distribution of wealth is even more lopsided. The top 1% of households own nearly 40% of total household wealth -- more than the bottom 90% of households combined -- and earns half of all capital income. Income and wealth are more unevenly distributed among Americans than at any time since the Jazz Age of the 1920s.
According to the Economic Policy Institute the rich-poor gap widened with the nation's top one percent now collecting 23 percent of total income, the biggest disparity since 1928. According to the IRS there are now 47,000 Americans worth $20 million or more, an all-time high.
What does this tell us? Not all tax cuts and not all deficits are equal. When wealth is inordinately pushed upwards as in 1928 and now in 2008, it will no longer be invested prudently, but rather it leads to rampant speculation leading to a speculative boom followed by a bust.
Only a reversal of this trend, with a pump priming of the economy and a loosening of credit can reverse the impending disaster. More tax cuts for the wealthy can only compound the disaster and the cry of Republicans that the answer lies in tax cuts for “small business” is not the answer either. First of all, small business does not refer to mom and pop stores. “Small business” according to the Small Business Administration includes all businesses that have fewer than 500 employees and, e.g. in construction $33.5 million average annual receipts, hardly what one would call “mom and pop stores.
While they are the largest creators of jobs in our economy, they produce jobs when there is demand, and consumers produce 70% of demand.
If consumers aren’t buying no amount of tax reduction for the suppliers will cause them to produce that for which there is no market. It is the fallacy of supply side economics, which is really another word for redistribution of income upwards.
What is stimulative? Anything that puts money in the hands of those who need it most and who will spend it immediately out of necessity. Thus supplying money to those who are unemployed is the best stimulus. Even if they are simply given the money it will be stimulative because it will be spent creating demand. But this is not the best stimulus because it has no multiplier effect. It is better to employ that person. If we employ him/her to dig a ditch and fill it, it will be stimulative, but it has no multiplier effect. But if we employ that person, e.g. to seed the Capitol lawn we get a multiplier. Not only when they spend, will they cause businesses who manufacture the goods and who warehouse it and who retail it, etc. to ramp up production, causing them to hire additional people to meet the demand which in turn causes more spending, causing a chain reaction which reverses the cycle of layoffs, but in order to seed the lawn, seeds have to be bought, construction equipment has to be rented, each of which creates jobs leading to more jobs, and in the end we have the benefit of a better lawn. But this small bit of creative spending was ridiculed by Republicans and dropped from the bill. Yet unlike large projects, which give more permanent benefit, nothing could have been more “shovel ready.”
Giving money to the states is another example of a provision in the stimulus bill which could not be improved upon, because if we want quick results what can be better than hiring people, if it is not keeping them from being fired. States, unlike the federal government, have to have balanced budgets and so when as a result of the loss of tax revenues due to the recession, they are faced with deficits, they have no choice but to increase taxes or lay off employees, including police, firemen, teachers, etc. They have to stop repairing roads and they have to stop capital projects already under way or shovel ready. That is not what we need when we are trying to start such programs, not stop them. Yet this was the “pound of flesh” our three “moderate Republicans” demanded as a condition of their supplying the votes needed to stop a filibuster.
For a discussion of the filibuster see the paragraph preceding the antepenultimate one here.
They insisted that the amount allocated for aid to states be cut by $40 billion.
We might well ask why this opposition. Bobby Jindal, the governor of Louisiana, the official Republican spokesman made it clear that Republicans were stills stuck on doing nothing. His main theme was to rely on Bush’s failure in Katrina to show government doesn’t work. How ironic. Republicans, after eight years of blindly supporting Bush are now running against him. Besides they seem unable to tell any story without lying. It appears that Jindal’s story about rescuers being threatened by federal agents because they didn’t have insurance and that he was there, was a total fabrication.
They are now even going so far as to rewrite the history of the Roosevelt New Deal. Now we hear that the New Deal was totally ineffective. As I will demonstrate in my next commentary the facts and figures belie that, but it shows that no distortion, nor any lie that will advance their agenda is off the table.
It really all began during the Clinton Administration. Clinton had proved that not all tax cuts are stimulative and not all tax increases dampen economic activity. As the bible says (Ecclesiastes 3) and Pete Seeger made famous, “There is a time for everything, and a season for every activity under heaven:”
That is a lesson that the minions of the Republican Party have not learned or as has often been said about them, “They have never forgotten anything and they have never learned anything.”
They are wed to the proposition that taxes need to be cut all the time, and never, never raised. When Clinton proposed raising some taxes on the rich, the economy that he inherited from Bush pére was in the doldrums but interest rates set by the Fed were high. Clinton reached an agreement with Fed Chairman, Alan Greenspan, that if he reduced the deficit the Fed would lower interest rates. The result was a booming economy and a booming stock market. In fact the stock market entered a period of such an exaggerated boom that it caused Greenspan to coin the now famous phrase, “irrational exuberance", but he did nothing about it despite the fact that it was obvious that the stock market boom was caused by rampant speculation fueled to a large extent by buying on margin, i.e. using borrowed money to speculate in the market, or as it is called “leveraging” ones investments. The Fed has the power to raise or lower this requirement (see here) but Greenspan in keeping with his then philosophy of believing that the markets regulate themselves left the market to its own devices.
I believe that set the tone for the Bush fils eight years of wild speculation by the banks at unheard of levels of leveraging their loan portfolios. At the same time, following the policy that all tax cuts are good, these years brought about some of the largest tax cuts ever, leading to huge deficits, which were defended in the words of V-P Dick Cheney, “Reagan proved deficits don’t matter” and with the enthusiastic support of the Republican party in Congress.
What a change an Administration makes. Now, suddenly running up deficits, say Republicans, is “generational theft.” But are they really concerned with deficits even now. They agree that we need to stimulate the economy, and they agree that reducing the deficit now is the wrong prescription, but they want to do it with more tax cuts for, you guessed it, the wealthy. They don’t want to “redistribute wealth” after having presided over the greatest redistribution of wealth upward, toward the wealthy, in the history of the US. As a matter of fact the wealth redistribution upward began in the Reagan years. In 1980 the top 10% of households accounted for 33% of total household income. By 2000 this group accounted for 44% of total household income. Today the top 1% of households receives more pretax income than the bottom 40% and the distribution of wealth is even more lopsided. The top 1% of households own nearly 40% of total household wealth -- more than the bottom 90% of households combined -- and earns half of all capital income. Income and wealth are more unevenly distributed among Americans than at any time since the Jazz Age of the 1920s.
According to the Economic Policy Institute the rich-poor gap widened with the nation's top one percent now collecting 23 percent of total income, the biggest disparity since 1928. According to the IRS there are now 47,000 Americans worth $20 million or more, an all-time high.
What does this tell us? Not all tax cuts and not all deficits are equal. When wealth is inordinately pushed upwards as in 1928 and now in 2008, it will no longer be invested prudently, but rather it leads to rampant speculation leading to a speculative boom followed by a bust.
Only a reversal of this trend, with a pump priming of the economy and a loosening of credit can reverse the impending disaster. More tax cuts for the wealthy can only compound the disaster and the cry of Republicans that the answer lies in tax cuts for “small business” is not the answer either. First of all, small business does not refer to mom and pop stores. “Small business” according to the Small Business Administration includes all businesses that have fewer than 500 employees and, e.g. in construction $33.5 million average annual receipts, hardly what one would call “mom and pop stores.
While they are the largest creators of jobs in our economy, they produce jobs when there is demand, and consumers produce 70% of demand.
If consumers aren’t buying no amount of tax reduction for the suppliers will cause them to produce that for which there is no market. It is the fallacy of supply side economics, which is really another word for redistribution of income upwards.
What is stimulative? Anything that puts money in the hands of those who need it most and who will spend it immediately out of necessity. Thus supplying money to those who are unemployed is the best stimulus. Even if they are simply given the money it will be stimulative because it will be spent creating demand. But this is not the best stimulus because it has no multiplier effect. It is better to employ that person. If we employ him/her to dig a ditch and fill it, it will be stimulative, but it has no multiplier effect. But if we employ that person, e.g. to seed the Capitol lawn we get a multiplier. Not only when they spend, will they cause businesses who manufacture the goods and who warehouse it and who retail it, etc. to ramp up production, causing them to hire additional people to meet the demand which in turn causes more spending, causing a chain reaction which reverses the cycle of layoffs, but in order to seed the lawn, seeds have to be bought, construction equipment has to be rented, each of which creates jobs leading to more jobs, and in the end we have the benefit of a better lawn. But this small bit of creative spending was ridiculed by Republicans and dropped from the bill. Yet unlike large projects, which give more permanent benefit, nothing could have been more “shovel ready.”
Giving money to the states is another example of a provision in the stimulus bill which could not be improved upon, because if we want quick results what can be better than hiring people, if it is not keeping them from being fired. States, unlike the federal government, have to have balanced budgets and so when as a result of the loss of tax revenues due to the recession, they are faced with deficits, they have no choice but to increase taxes or lay off employees, including police, firemen, teachers, etc. They have to stop repairing roads and they have to stop capital projects already under way or shovel ready. That is not what we need when we are trying to start such programs, not stop them. Yet this was the “pound of flesh” our three “moderate Republicans” demanded as a condition of their supplying the votes needed to stop a filibuster.
For a discussion of the filibuster see the paragraph preceding the antepenultimate one here.
They insisted that the amount allocated for aid to states be cut by $40 billion.
We might well ask why this opposition. Bobby Jindal, the governor of Louisiana, the official Republican spokesman made it clear that Republicans were stills stuck on doing nothing. His main theme was to rely on Bush’s failure in Katrina to show government doesn’t work. How ironic. Republicans, after eight years of blindly supporting Bush are now running against him. Besides they seem unable to tell any story without lying. It appears that Jindal’s story about rescuers being threatened by federal agents because they didn’t have insurance and that he was there, was a total fabrication.
They are now even going so far as to rewrite the history of the Roosevelt New Deal. Now we hear that the New Deal was totally ineffective. As I will demonstrate in my next commentary the facts and figures belie that, but it shows that no distortion, nor any lie that will advance their agenda is off the table.
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