26
The best way to move the economy
Robert Reich
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
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."
Pages
- ‹ previous
- 1
- 2
- 3
Reich says that when the government spends to build a road or school the money stays here in America. If that is true then why was the European Union so upset about "Buy American" wording currently in the stimulus package? They called it protectionist and threatened the possibilities of a trade war. Maybe they understand something that Reich wants to gloss over in an effort to make people think more government is the best solution to all our problems.
Reich is completely wrong! He knows it too. Notice how he does not talk about the effect that the added debt the government must take on to create the "stimulus" package. Notice he does not mention what happens once the spending is stopped and the government "jobs" end. Notice he does not mention the jobs that are destroyed by the tax burden to pay the interest on the debt (never mind paying back the principle). People will ALWAYS spend THEIR money better than the government because they don't need a multi-billion (or is that trillion) dollar bureaucracy to spend it. People spend their money wisely and they get what they want. The government spends money wastefully and most likely does not get what they want. All the government is driven by is controlling your life. They are the "elite" ruling class that knows better on how to run your life than you do. If we need so much public work on infrastructure what happened to all the tax dollars I thought was being spent on infrastructure?
To say most economists agree that spending stimulates the economy more than tax cuts is misleading at best and dishonest at worst. Last spring's stimulus package was not a tax cut so much as a handout. He is wrong to lump this spending into the "tax cut" definition. A tax cut would be a reduction in marginal rates.
Research by Berkeley economists Romer & Romer shows that tax cuts have an economic multiplier of about 3, compared to the 1.5 for spending. This study is well respected for its robustness. Christina Romer was recently appointed to Chairwoman of the Council of Economic Advisors.
This directly contradicts Reich's assertion that spending is superior to tax cuts. As an NPR fan, I wouldn't be bothered by the Reich's assertions if it were based on research or even acknowledged the research of his talented Berkeley colleagues.
I can't disagree with Robert Reich more. According to Robert Reich, it is the government's duty to be the "spender of last resort". I beleive this is completely wrong. The free market should determine how much money is spent in the economy, not the government. The free market is designed to protect the consumer. When price rise too high(inflation), people tend to spend less and wait until prices fall to market level. The sooner prices fall, the sooner people will start spending again. However, if the government decides to intervene and spend, prices stay high. Coupled with artificially low interest rates and massive deficit spending the currency weakens, which makes imports very expensive for Americans. This is makes the price of oil go up,which raises gas prices and the prices of other necesseties such as food(oil and gold was stable in prices for 20 years but didn't start rising until the dollar started declining in value 2003). People, even if they have a job, have less to spend except on the essentials and their standard of living goes down. The non-food producing companies then lose business because people aren't buying from them. This creates a vicious cycle. The truth is that government spending never helps an economy. In order for goverment to spend, they must take money from productive citizens and use it politically. This never works. We saw how in the 30's government programs and spending turned a recession into a 10 year depression. To sum up my argument, in the last 6 years we have seen something dramatic. Inflation has been the highest since the 70's (despite the CPI information, whose statistics are questionable) due decline in the value of the dollar(causing high oil prices). This inflation has been pushing prices up and people are buying less and driving less because they can't afford it. This recession, which the free market Austrian economists predicted several years back is a natural consequence of government interventionism. More government interventionism won't work, it never has. The sooner the government stays out of the market, prices will fall to market level, and consumers will spend, creating jobs.
Robert Reich says saving a tax cut won't stimulate the economy. If the money goes into an American bank, not a Chinese bank via WalMart, then the bank will have money to lend, fixing the credit crunch. Are consumers more likely to save a tax cut than save wages from a government job? It sounds as if Mr. Reich is just rationalizing his desire for bigger government.
I completely agree with Mr. Reich. People and corporations don't always spend the money... like squirrels hording acorns in winter time. The government needs to put that money into public works as it has two needed effects: direct economic stimulus and infrastructure renewal. In fact, repairing the aging infrastructure nationwide will prepare the country for future economic progress which relies heavily on transportation. It's that simple, right?
Pages
- ‹ previous
- 1
- 2
- 3
