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The best way to move the economy
Robert Reich
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TEXT OF COMMENTARY
Renita Jablonski: What would the perfect stimulus package look like in your mind? Republicans and some Democrats want more tax cuts and less spending. It's a popular position because tax cuts are pretty popular. Plus a lot of people think they know how to spend their money better than the government does. Commentator Robert Reich says the focus needs to be on the best way to get the economy moving.
Robert Reich: Most economists agree that government spending has a bigger stimulative bang than do tax cuts. According to calculations by Mark Zandy of Economy.com, each dollar of spending generates about a dollar and a half of stimulus, while a dollar of tax cuts generates far less.
There are three reasons. First, most people who receive a tax cut don't spend all of it. They use part of it to pay down their debts or they save it. Most of us did one or the other last spring with that tax rebate. Now from the standpoint of any particular individual, paying down debts or saving may be smart behavior -- even commendable.
But what's intelligent for an individual does not necessarily translate into what's good for the economy as a whole. The only way to create or preserve jobs is through additional spending. And unlike tax cuts used to pay down personal debt or add to savings, every dollar of government spending flows directly into the economy and adds to overall demand.
Second, even that portion of a tax cut we might actually spend doesn't necessarily go into the American economy. It goes all over the world. Now I have nothing against creating or preserving the jobs of Asians who assemble those flat-panel TVs you see at the mall, for example, but right now we're trying to create or preserve jobs here in America. By contrast, when government spends to repair a highway or build a school or help pay for medical services, the money and the jobs stay here in America.
Finally, those who say cutting taxes on businesses is the best way to create or preserve jobs forget about the demand side. Even with a tax cut, businesses won't hire workers unless there are customers to buy what those workers produce. A government stimulus that creates jobs is a necessary precondition.
This isn't a matter of more or less government. It's just economics. When consumers and businesses can't or won't spend enough to keep the economy going, government has to be the spender of last resort.
Jablonski: Robert Reich teaches public policy at the University of California, Berkeley. His most recent book is "Supercapitalism."
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Buy American? When Congress removed the "Buy American" clause from the stimulus package I was glad but conflicted. Like many of you I don't like the government getting too deep into the workings of the free market. It is not governmentâ??s place to dictate to us to buy American. And a trade war is the last thing we need! In addition the government should not have to tell us the obvious. We know we should think globally and act locally. This means buy locally too. When you buy an American product you are giving the â??ourâ?? economy a much greater stimulus than if you buy a foreign product. This is obvious to me a great number of others. We, YOU and ME are represented by our government and WE have the power. We can stimulate our economy. Next time you need something try to find one that is either â??Made in Americaâ?? or by an American corporation headquartered here in the US. When you buy foreign products you drop our own standard of living, by saying Americans get paid too much and receive too many benefits. The products we make here in the US provide health care, 401K retirement and even help to send the workers kids to college. Isnâ??t paying a little more for an American made product worth helping to pay for these. Our workers also pay Medicaid, Medicare, Social security taxes and educate our children. We donâ??t need the government to tell us to buy â??Made in Americaâ?? products its obvious to us. We just need to convince CEOâ??s and CFOâ??s to stop shipping our job overseas.
So economists have been telling us for decades that Americans were spending way too much money and getting too deeply into debt and not saving enough and that by doing so we were heading for a financial crises. So when that crisis arrives Mr. Reichs suggestion is that we do more of the same that got us into this mess in the first place? And this is considered wise by him and, apparently, the majority of Congress and our President? Even more interesting in a report just moments later a phrase by Benjamin Franklin crops up, "A penny saved is a penny earned." How appropriate that Mr. Reich would rather ignore such wisdom. No, we do not need the government to be our "Spender of Last Resort". We need to take out lumps and get ourselves out of debt so we can prevent prolonging the pain of this financial downturn. Giving money back to people, instead of having the government waste it in the usual bureaucratic morass really would be a much better way to help the economy recover. Somehow I dont think congress will ever get the message, though.
I listened with dismay this morning as Robert Reich towed the party line on the wasteful, naive and misnamed Stimulus Package now awaiting Senate Approval. Reich's logic - if it can be called that - is that the governmnent must spend when people wont. Those of us who have been awake for the last few years, however, remember an era of absolute profligacy in government spending. If government spending would fix our economy, it would hardly need fixing in the first place.
I listened with dismay this morning as Robert Reich towed the party line on the wasteful, naive and misnamed Stimulus Package now awaiting Senate Approval. Reich's logic - if it can be called that - is that the governmnent must spend when people wont. Those of us who have been awake for the last few years, however, remember an era of absolute profligacy in government spending. If government spending would fix our economy, it would hardly need fixing in the first place
I hate to say it but I think the Republicans are correct in attempting to get the majority of current home mortgage loans down to a 4 to a 4.5% interest rate as part of the stimulus plan being hammered out in Washington. Many of us who up until now have sat squarely in the middle class and have just managed to make our mortgage payments may be closer to foreclosure with every job loss or property devaluation. Indeed the tax breaks to first time buyers are probably good, but there may be very few first time buyers that qualify as many of them got into sub-prime loans over the last few years. Sure, some were sitting on the sidelines waiting to buy when the time was right, but I would guess that their numbers, if they are still employed, are fewer than those current homeowners that are just hanging on with hopes that a lower interest rate and a modified loan to value ratio becomes part of any stimulus package. I think that if we take it for granted that just because many people are up to date on their mortgages that they are in no need of mortgage assistance, we will all be in for a big, bug surprise...
The best economic stimulus ...and one much better than a theoretical tax credit on buying a home or more tax cuts:
- Our economy desperately needs a significant injection of liquidity and spending on ACTUAL goods and services.
- We need it immediately to avert a looming depression caused by our snowballing lay-offs which are impacting the whole spectrum of employment.
- This spending should be substantial and sustained.
- Shoring up dysfunctional and unaccountable banks has not produced discernible results.
- America's middle-class is currently being stressed to the max by consumer credit card debt. We are being driven towards bankruptcy in frightening and record numbers, in large part, due to the exorbitant and outrageous credit card rates (in excess of 20% and sometimes 30%!) being perpetrated by the creditor banks.
Question: What would be the greatest, most effective and most immediate stimulus to our economy?
Answer: Reduce ALL consumer credit card interest rates on ALL outstanding balances and future charges to a maximum APR of 12% effective March 1st.
This would free billions of dollars, currently going to pay usurious interest to banks, for immediate injection into the economy for the purchase of ACTUAL goods and services.
It would begin immediately and would generate a sustained injection of spending throughout our economy for the long term. It would be a consumer driven solution rather than a top-down bank focused approach ...which clearly hasn't and isn't working.
If the creditor banks feel that certain individuals are too much of a credit risk at 12% interest (Rather than a worse credit risk at the default APR of 29 to 32%? ...Go figure!), then they should have the option of closing the account and establishing a 7 year pay-out with the debtor at the 12% rate. This is fair, equitable and reasonable.
This radical yet simple move by our government would help many Americans get back onto a cash basis with their personal finances and would begin to reverse the slide into bankruptcy for millions of households.
Importantly, this move would provide reason for hope and evidence of economic justice to our citizens. Our basic sense of equity and belief in the fairness of our system has been assaulted by the developments in our financial markets in the last year. One almost cannot overestimate the degree of outrage in the middle-class; the social contract is in real danger of unraveling.
Does someone holding a credit card from any of the major issuing banks, need anyone to spell out the abuses and predatory behavior exhibited by this so-called industry, which is acting more and more like loan-sharks from the Mafia?
The credit card issuing banks have literally written the laws allowing themselves unprecedented power over their consumer debtors. They have greatly profited from our fear, our powerlessness ...and especially our shame at our own financial misjudgements and mistakes.
These banking institutions are not sacred, they do not hold the ethical or moral high-ground nor are they acting as partners with America. In fact, it's clear if one analyzes their actions over the last decade, that they care nothing about America, the people, our laws, our ideals and traditions or even our political parties; they care only about profit ...no matter the cost! We should rein them in to protect ourselves.
All major religions and ethical philosophies condemn and reject usury and financial oppression. History records the consequences when the weak are economically oppressed by the powerful and rich ...eventually, but inevitably, a reaction takes place. Does is make any sense to allow any banks to initiate the conditions igniting social unrest, massive poverty and political upheaval?
Here's a thought experiment. What would be the result of a default en masse on their monthly bills by millions of credit card debtors?
Desperation and fear are taking hold of consumers and businesses alike and they are not heartened by the package currently working its way through Congress. Once this fear dynamic takes hold, at our jobs and in our home and families, there may be, in fact, nothing anyone can do to stop the downward spiral into a major world-wide depression.
We need our leaders and legislators to think outside the box! Reliance on the people and banking institutions, that are largely responsible for this mess, has not and will not work.
Incrementalism with gradual and measured responses (minimal tax cuts, infrastructure, etc.) may be the conventional approach, but we need immediate radical surgery.
We are more than our credit scores. We are the citizens, the tax payers, the working class and the voters. We can change this oppressive and immoral system of credit, save ourselves and save our economy to boot ...if we unite.
The infrastucture spending is appropriate for several reasons; it needs to done anyway, it will create jobs (which may offset current job losses) but other than possibly keep things from getting worse, is unlikely to "stimulate" our credit economy.
Likewise, general tax cuts for both business and individuals, are unlikely to stimulate anything... just be used to save and pay down debt.
The recently proposed tax credit on buying homes is the right direction but I would propose re-instituting the commercial interest deduction we all used to have. I would make it "above the line" so you would not have to itemize to get the benefit AND put a time limit (say two years) on it followed by a couple of years of 50% deduction and then zero.... (perhaps to be followed by increases in tax to pay down the debt if the economy is recovering!)
THIS would incentivize consumer spending like no other proposal I have yet heard about.
Personally commendable behavior isn't good for everyone? Even though skipping lunch at McD's might be personally commendable, and saving money and reducing my weight, cholesterol and salt intake might be good for me, I should continue to Super Size because both McDonald's and the health care system need my dollars?
I can see the advertising now: "Every dollar you spend with us translates to two dollars for the fast food worker, weight loss and health care industries." (McD's advertising firm: use my email address and PayPal me the royalties. I want my piece of the Super Size Stimulus.)
(full commentary at http://bobdaniel.blogspot.com/)
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