Monday, October 31, 2011

It All Makes Sense (If You Stand On Your Head)

If the Republicans running for president went on Saturday Night Live and proposed their policies, the best we could say is that they weren't funny. The problem is that they're serious. And the scary part is that one of them could actually become president.

First up,

Governor Rick Perry believes that he can balance the federal budget with his 20% flat tax plan.
"You got to look at the spending cuts as well and you have to look at the dynamics of the growth that goes on here," Perry said, adding that a simplified tax system would give job-creating entrepreneurs more confidence to invest.

Yes, I got to, Governor, but if consumers aren't spending because the cuts are also cutting jobs, then where's the money to invest going to come from? Asked in the same interview how he would make up the $5 trillion dollar hole his plan would create in the federal budget, his answer was, "There's nothing wrong with lower revenue," he said. "I don't want more revenue in Washington, D.C.'s hands." If you're trying to pay for things that private industry won't pay for, then there is something terribly wrong with lower revenue.

Perry's most telling answer was actually a non-answer to a key question. From the article:

When asked if his proposal would give a bigger break to wealthy taxpayers than to poorer ones and raise questions about fairness, Perry said the wealthy more often are job creators. "Historically, those who have money put more money into their business," he said. "They hire more people."

In effect, yes, the wealthy will benefit and I will implement more of the failed trickle-down policies of the past.

Meanwhile, Herman Cain is still trying to explain to Americans how they would benefit from his 9-9-9 Plan. On CBS's "Face The Nation" he merely said, "We have some more educating of the public (to do)," Cain said. "And this is why, maybe, some people don't like it yet." Perhaps Mr. Cain can hire some out-of-work public schoolteachers to educate the public. There are plenty of them around.

What's worse is that even more sensible Republicans are looking at these plans and are finding them wanting. Consider this from the article, Studies challenge wisdom of GOP candidates' plans, an AP story on Yahoo!News:

"Republicans favor tax cuts for the wealthy and corporations, but these had no stimulative effect during the George W. Bush administration, and there is no reason to believe that more of them will have any today," writes Bruce Bartlett. He's an economist who worked for Republican congressmen and in the administrations of Presidents Ronald Reagan and George H.W. Bush.

As for the idea that cutting regulations will lead to significant job growth, Bartlett said in an interview, "It's just nonsense. It's just made up."

Each of the Republican candidates wants to significantly cut taxes on the wealthy, repeal the Dodd-Frank bill and cut federal spending for programs that middle class Americans need during a time of economic dislocation. They want to let the market decide our future without regard to the fact that market creates winners and losers, and the candidates don't really want to help the losers. Oh well.

If you want to find an island of common sense in all of this, then look no more. In his Op-Ed piece in the New York Times last week, Professor James Livingston, from Rutgers University says, It’s Consumer Spending, Stupid and he has a compelling argument. He says:

As an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth. 

Then he gets all professor-y

Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor. 

In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays. 

Can you dig it? I knew that you could.

What the Republicans are saying is exactly the opposite of what has historically been the case. We can continue to cut taxes to the wealthy and let them thrive while the middle and working classes lose earning and spending power, or we can do the right thing and make our economy more equitable.

This is the choice we have next November.

1 comment:

  1. Companies hire for two reasons: 1) to meet real or forecast demand, and 2) if and only if the value of the new hire exceeds the cost. A restaurant owner whose taxes are cut to zero won't hire if there are few customers (due to the evisceration of the middle class, for example).