More Everything...Well, at Least the Bad Stuff
Sixteen economic and academic lions of liberal orthodoxy just joined together in a consensus statement to demand immediate action to bolster our teetering economy. These geniuses of the Left are calling for more stimulus and tax credits.
Their thesis is: "As in the 1930's, the economy is suffering a sharp decline in aggregate demand and a loss of business confidence. Long experience shows that monetary policy may not be enough, particularly in deep slumps, as Keynes noted." As a result, they say there is "urgent need for government to replace the lost purchasing power of the unemployed and their families." They believe this can best be remedied via a boost in government spending programs.
Keynes? Seriously? His continually discredited theories will no sooner solve our economic woes than will magnetic bracelets for all fix our healthcare system. Neither has any basis in fact.
Aggregate demand is not the issue. Aggregate employment is.
There is plenty of demand. Those who managed to scrape together the cash, readily queued up to take advantage of government largesse in the form of home and auto purchase incentives. Unfortunately, when those subsidies disappeared, so did the buyers—not due to a lack of demand, but rather because of ongoing uncertainty over the economic landscape and household finances.
Other than that great economic mind, Nancy Pelosi, does any serious thinker really believe that unemployment benefits have a sustainable stimulative effect on the economy? Sure, they are necessary for a lot of reasons, but is it really so difficult to understand that they change nothing structural? Those on the receiving end save what they can (if they can) and spend the remainder, mostly on necessities.
To believe Pelosi and the Keynesians, one has to assume that businesses are highly irrational. For example, should we have expected the auto companies and home builders to ramp up manufacturing and construction, and therefore employment, as a result of ephemeral government-subsidized, consumer-directed incentives? We would be in even worse shape now if they were dumb enough to take that bait.
Who supposes executives in those industries choose to weigh more heavily a fleeting blip in sales from a one-time consumer incentive over a stubborn unemployment rate of 9 or 10%?
Now that businesses have had time to restructure and get their costs in line, wouldn't it be much more logical to strongly "encourage" them to hire? Government action that significantly reduces their cost of doing business, and concomitantly increases profitability, will invigorate hiring (i.e. a substantial cut in, if not elimination of, the corporate tax). That is a growth-oriented policy that has a structural and sustainable impact. More jobs. More disposable income. A healthy and expanding economy.
Of course, a similar result could be derived by reducing the cost of running a household (i.e. a permanent across the board cut in individual tax rates).
Sure, either solution will ultimately lead to some big(ger) profits for those evil corporations, but like it or not, that's the virtuous cycle that has been the engine for this country's past greatness. Hopefully, that will remain the case in the future.
Ahh, I can hear the Liberals now....
Across the board tax cuts for businesses and/or individuals; you've got to be kidding!!! Just lining the pockets of the rich!
Funny, I wouldn't mind the rich getting richer in return for lowering the unemployment rate to 5 or 6%. Call me crazy.
Unfortunately, it appears that many in the political class would prefer to cynically maintain/expand their voting block, rather than affect the change necessary to get the country back on track.
As the supermodel sitting in first class next to Seinfeld said, "I've never met a man who knew so much about nothing."
She might as well have been talking to the clueless sixteen.
Their thesis is: "As in the 1930's, the economy is suffering a sharp decline in aggregate demand and a loss of business confidence. Long experience shows that monetary policy may not be enough, particularly in deep slumps, as Keynes noted." As a result, they say there is "urgent need for government to replace the lost purchasing power of the unemployed and their families." They believe this can best be remedied via a boost in government spending programs.
Keynes? Seriously? His continually discredited theories will no sooner solve our economic woes than will magnetic bracelets for all fix our healthcare system. Neither has any basis in fact.
Aggregate demand is not the issue. Aggregate employment is.
There is plenty of demand. Those who managed to scrape together the cash, readily queued up to take advantage of government largesse in the form of home and auto purchase incentives. Unfortunately, when those subsidies disappeared, so did the buyers—not due to a lack of demand, but rather because of ongoing uncertainty over the economic landscape and household finances.
Other than that great economic mind, Nancy Pelosi, does any serious thinker really believe that unemployment benefits have a sustainable stimulative effect on the economy? Sure, they are necessary for a lot of reasons, but is it really so difficult to understand that they change nothing structural? Those on the receiving end save what they can (if they can) and spend the remainder, mostly on necessities.
To believe Pelosi and the Keynesians, one has to assume that businesses are highly irrational. For example, should we have expected the auto companies and home builders to ramp up manufacturing and construction, and therefore employment, as a result of ephemeral government-subsidized, consumer-directed incentives? We would be in even worse shape now if they were dumb enough to take that bait.
Who supposes executives in those industries choose to weigh more heavily a fleeting blip in sales from a one-time consumer incentive over a stubborn unemployment rate of 9 or 10%?
Now that businesses have had time to restructure and get their costs in line, wouldn't it be much more logical to strongly "encourage" them to hire? Government action that significantly reduces their cost of doing business, and concomitantly increases profitability, will invigorate hiring (i.e. a substantial cut in, if not elimination of, the corporate tax). That is a growth-oriented policy that has a structural and sustainable impact. More jobs. More disposable income. A healthy and expanding economy.
Of course, a similar result could be derived by reducing the cost of running a household (i.e. a permanent across the board cut in individual tax rates).
Sure, either solution will ultimately lead to some big(ger) profits for those evil corporations, but like it or not, that's the virtuous cycle that has been the engine for this country's past greatness. Hopefully, that will remain the case in the future.
Ahh, I can hear the Liberals now....
Across the board tax cuts for businesses and/or individuals; you've got to be kidding!!! Just lining the pockets of the rich!
Funny, I wouldn't mind the rich getting richer in return for lowering the unemployment rate to 5 or 6%. Call me crazy.
Unfortunately, it appears that many in the political class would prefer to cynically maintain/expand their voting block, rather than affect the change necessary to get the country back on track.
As the supermodel sitting in first class next to Seinfeld said, "I've never met a man who knew so much about nothing."
She might as well have been talking to the clueless sixteen.
The tempting thing to do here is just state the obvious which is that continued investment in the non-working population is just stupid. But even though I'm right that blunt point of view would paint me as a "Tea-Party, insensitive, intolerable, conservative, scumbag" which I'm really not, at least not most of the time. So let me try a little harder to explain why it is a stupid approach at this point in time with a touch more depth.
You mentioned supply and demand. That's the right track to think about the one right strategy to help us dig out of our hole (not deeper into it). Supply and demand is circular not finite or binary. Continuing unemployment now is the same kind of prescription overkill that keeps Lindsay Lohan in jail and killed Michael Jackson...addiction to prescription drugs. Instead of bending over to the whims of a whining drug addict. The answer is simple. STOP giving the drug. The patient (US ... literally) is through the physical withdrawal phase. There is no need for more medication. GET OFF THE DRUG and face reality. You're in one of two groups of 100's of thousands of people. 1) You haven't had a job for months, you've collected unemployment for months, you're out of time and this part is really going to hurt. But there are no more opiates to dull the pain just the raw reality of unemployment and way too many bills. OR, 2) You were on unemployment and you're back at work and you're starting to build up a little more cash flow and get your financial life back on track. Either way - supply and demand rule but the kind of the supply that really will help here is the supply of earned cash, not a placebo supply or renewed prescription of oxycotin-laced cash handout. So that's why continuing unemployment is really stupid. And the people suggesting that we continue to do it are idoiots for abusing power given to them by their license or in this case the people of the United States and continuing to prescribe the wrong solution for the patient.
And that's all she wrote ...
Sincerely ... the Lama
Reply to this