Monday, February 09, 2009

This stimulus

I have a tough time getting buzzed about the new stimulus bill. Make no mistake-- this is a Band-Aid for a stab wound to the gut. There can truly be no real solution without an end to these irresponsible tax cuts, and President Obama and the Democrats were too willing to hold the line on those, while agreeing to slice out targeted spending to state governments, to school construction, Head Start, Pell Grants, food stamps, health care, and the extension of unemployment benefits.

The mistake made by the media and the American people is in assuming that Republicans and Democrats both have the well-being of needy Americans at heart. Republicans, looking to appease their well-heeled contributors, were looking to add $3 trillion in tax cuts to the deal, while Democrats, looking to satisfy their slightly-less well-heeled contributors, decided that would pass muster. The plan still has the federal government deferring authority to many of the same companies and executives that were peddling risky loans and investments and that failed to foresee the volatility of the market, while the nation's debt limit is about to rise over $12 trillion. Debt got us into this mess, but somehow deepening the debt will get us out? Take that, grandkids.

As Paul Krugman points out, Obama played the politics so badly on this one, courting the so-called "centrists," that the Republicans and Blue Dogs probably would have felt compelled to demand $100 billion be cut from the bill regardless of the amount proposed.

For what it's worth, I've got a simple solution to our economic woes: Tax the top 1% of earners at 75 percent, the rest of the top 10% at 50, hold the line on everyone else, end the two wars, cut the defense budget by 10%, and unburden our nation's employers by implementing a program of single-payer, universal health insurance.

3 Comments:

At 7:49 AM, Blogger Dave Levenhagen said...

Your suggestion, while unique, will not solve anything. If anything, it would solve budget woes, not economic woes. However, I contend that it may actually make both worse. If you tax the top earners at such an egregious rate, they will take their earnings to another country. And I'm guessing the top earners have a lot of lower earners supporting the company they run. So, those people will all be out of jobs and the US government will not only lose the tax revenue from that top earner who went to a more friendly country, but also have to increase unemployment benefits to pay for the employees of that US company that they just inadvertently moved overseas.

I agree the budget is a long-term problem and could become an immediate problem if foreign investors decide to stop buying US debt. But someone has to pick up some of the slack from consumers who are no longer spending at a rate necessary to keep the economy moving forward.

To be honest, I don't see the need for tax cuts in the stimulus either. The focus should be on spending quickly in order to create jobs. And although I don't want the government to bailout homeowners, I fear that something has to be done in order to stabilize and then get house prices rising again. Because I get the feeling that many consumers will not be willing to increase spending while their largest investment is falling in value.

 
At 11:33 AM, Blogger CM said...

Isn't it time also to talk about the inherent flaws of our economic system? I say good for those people who have cut back on their consumption. That's a form of market correction right there simply by people stopping the spending of money they don't have. Yet, we've been told by certain higher-ups that spending is vital, even a form of patriotism.

We need 'sustainability', not 'growth.' The stock market pulls investment away from Main Street and onto Wall Street, where the priority is short-term bumps in listed stock prices, instead of long-term investments in local communities. Yet, it's always the local communities where individuals and families feel the pinch.

What's to be done?

 
At 2:37 PM, Blogger Dave Levenhagen said...

I think that consumers are going to be better off 10 years from now because I think this has scared people back into the mindset that they have to save money. The savings rate in the US was 0% last year and by the end of 2009 it could be almost 7% of consumer income. In the long run, that is a much better scenario that creates a more stable and reliable consumer.

The spending part of the financial equation is important though since the consumer typically drives 2/3 of the GDP. But GDP doesn't have to grow at 5-6% a year, it can grow around 3% per year and still sustain employment.

 

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