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The Leaky Economy

Posted by on July 25, 2010 No comments

It’s a pretty standard course of action these days that when the US economy gets in trouble, the government starts ladling out ‘stimulus’ money. This ‘stimulus’ (whether in the form of direct payments, tax breaks, or low interest rates) is supposed to jump-start the economy and create jobs. The idea is that creating demand for products (either from consumers or other businesses) will encourage companies to hire people to meet that demand. Increase demand, increase production, create jobs. Seems straightforward. Unfortunately, the borders of the US economy are porous.

That was not always the case. Between WWII and 1990, it took about eight months for the jobs lost in a recession to be recovered. Job recovery from the 1990 recession took 23 months. Job recovery from the 2001 recession took 36 months. We’re still waiting on the current recession.

The reason behind these ‘jobless recoveries,’ I think, is that in our globalized economy the demand created by stimulus spending no longer has to be met by workers in the US. The stimulus money basically leaks out of the US and stimulates economies all over the world. Imagine a colander in a sink. You keep pouring water into the colander, but it never gets full. Not until the entire sink is full enough of water to raise the level in the colander.

That is the situation we have when the government tries to ‘stimulate’ the US economy. The money pours out into the global economy as fast as they can pour it in. They’re not really stimulating the US economy; they’re stimulating the entire planet’s economy, which takes a lot longer and a whole lot more money.

And so we get ‘jobless’ recoveries. As the global economy grows, these recoveries are going to take even longer, unless we drastically re-think how we go about managing our financial crises.

There seems to be three different ways the problem could be approached. (Well, four if you count “Don’t do anything,” which is the likeliest course of action.)

The social safety net could be strengthened so that there isn’t as much urgency to stimulate the economy. The downside of this is that increasing unemployment payments, and extending low-cost health care to the unemployed, would be expensive. The upside it that it would probably be less expensive than what we’re doing now.

The stimulus could be made more direct, to focus it on the US economy. That would require more direct government involvement, not just writing checks to consumers and businesses and hoping they do the right thing with the money. The government would have to directly put people to work, require that companies create their new jobs here in the US, that sort of thing. The downside is that government job programs are generally inefficient, and any government involvement in the economy causes some people to begin bleating, “Socialism!” The upside is that it would keep some of the money in the US economy.

Finally, we could make the borders of the US economy less porous. This would involve a small tariff, say about 5%; just enough to impose some friction on the money leaving the country. The downside is that it would annoy many of our foreign trade partners, who are used to having unfettered access to markets in the US, and many US companies which are used to being able to move parts of their operations overseas without restriction. The upside is that it would restore some of the competitive imbalance that US companies currently operate under, and keep many jobs here in the US.

I favor a mixed approach; strengthen the safety net for workers, and impose a small tariff on all imports. The tariff would go a long way towards paying for the safety net.

This would raise the cost of some goods, either directly in the case of imports, or indirectly in the case of companies having to maintain more expensive operations here in the States (as opposed to hiring people in China or Indonesia and importing their products), but with more jobs and money kept in the country people would be better able to afford the more expensive goods. NOT doing it will mean increased taxes to pay for all that stimulus money that is pouring out of our country, to benefit workers all around the world. We simply can’t afford that any longer (though that is exactly what the powers-that-be want to keep doing).

In either case we pay. This plan at least lets us pay each other.

An Open Letter to Congress

Posted by on December 16, 2011 No comments

My local Congressthing, Kenny Marchant, was unwise enough to send me a flyer with a small survey attached. I thought it did not adequately cover the issues, or allow a sufficient range of responses, so I wrote him a letter to go with it. Here it is.

Dear Mr. Marchant,

Your little survey on the Economy & Jobs doesn’t give adequate space for a proper reply, so I thought I would elaborate.

Of possible interest to you is the fact that practically no one is interested in ANY of the issues that you asked us to rank in importance. (A survey on the Economy and Jobs that doesn’t actually mention jobs?) The issues of importance to American families right now are jobs and household expenses, and little else. In short, when families don’t have any money and can’t afford Christmas presents for their children (much less a college education for those children), and are struggling just to put food on the table, I can assure you that reforming the tax code is not something they are even aware of, much less concerned about. Your slate of ‘concerns’ is not only insensitive, but outright insulting.

Your ‘choice’ between two ‘plans’ to ‘spur economic growth’ is almost as bad. ‘Lowering the tax burden’ isn’t going to make a significant difference to any families that actually need the help, at the cost of massively increasing our public debt, and ‘reducing Federal regulations’ is only going to lead to an orgy of misconduct on the part of various corporations, another financial crisis, and another looting of the public treasury. As is always the case with ‘deregulation.’ (A code phrase we all recognize now, Mr. Marchant. We know it means “Let the corporations who are paying for my campaign do whatever they want.”)

Raising Federal spending and taxes has a better chance of success, though I notice that the Republican party, for some reason, is only interested in raising taxes on poor and working class families, while cutting taxes even further for upper income families. A very curious thing, taking more money from those who don’t have it and giving it to those who don’t need it. Perhaps the party could use that as a campaign slogan next year. “We take from the poor and give to the rich. Vote Republican!” Well, perhaps not.

It was increased Federal spending (preparing for involvement in WWII) that finally got us out of the Great Depression (the last time the financial markets looted the country and destroyed the economy), so we know it can work. Unfortunately, it is inevitable that Congress will initiate the wrong spending and raise the wrong taxes.

If you are truly interested in what your constituents think would be an effective plan to spur economic growth, sir (and I know that you are not, and in fact are not even reading this, but perhaps some bored person on your staff has gotten this far), here are my thoughts.

First, cut all military spending by 75%. Spread this reduction out over three years, so that at the end of that time the budget for all military spending is 25% of its 2011 level. (A savings of about $700 billion, give or take a few tens of billions.) Our military expenditures have doubled in the past 10 years, and were at unnecessarily high levels before then. Our preponderance of military power (we spend six times as much as China, and ten times as much as Russia) is not only excessive, but bankrupting us. We are destroying ourselves (and our future military power) for the sake of gross overkill. Any plan to reduce the Federal budget that does not reduce military expenditures is not a serious plan, and everyone knows it.

Second, return the marginal tax on upper income brackets to its Eisenhower Administration levels. Specifically, and this is just pulling a few numbers out of the air (though still a more serious proposal than I’ve seen from most Presidential candidates this year), 70% on income over $500,000 (married, filing jointly), 85% on income over $750,000, 90% on income over $1,000,000, and 95% on income over $5,000,000. (Approximating the upper tax brackets of the Eisenhower era, where the marginal rate was 92% on income over $400,000 – a sum about equivalent to $5 million today.) This will raise additional tax revenue in a way that will not impact consumer spending (the driving force of much of the economy). I would also restore the capital gains tax, but let’s not get into too much detail on a simple survey response.

Third, institute a 2.5% tariff on all imports into the United States, without exception. (This would raise approximately $47.5 billion, based on 2010 imports.) This money would go into a fund. Corporations which move American jobs overseas would also pay into this fund (let’s say $50,000 per worker as a reasonable starting figure). For the first three years of the fund’s existence, an additional $75 billion per year would be added from the Federal general fund.

This fund would be used specifically (and only) for retraining US workers. Grants would be available to people who are currently unemployed or working only part-time and whose household income was under $100,000 the previous year. Higher income families could obtain student loans from this fund at a reasonable rate (say, 5 years at 5% interest, with interest and payments deferred for two years before the five-year repayment period begins). Households with an income over $250,000 would not be eligible.

To clarify:
Household income under $100,000: Grant eligible, no repayment.
Household income between $100,000 and $250,000: Student loan eligible.
Household income over $250,000: Not eligible.

This is the cornerstone of the plan. It is absolutely essential to the long-term and short-term economic health of the country that middle- and working-class families be financially stable and productive. Workers with outdated skills, or skills in a field that has contracted and no longer has room for them, must be given the opportunity to rejoin the workforce at a level at least similar to what they used to enjoy. This is critical not only for the economy (families without money can’t spend, creating a vicious cycle that causes the economy to contract even further), and the Federal budget (people who aren’t working aren’t paying taxes), but also for their own feelings of happiness and self-worth, and the country’s political stability. A worker who used to make, say, $75,000 a year and enjoyed a middle-class lifestyle, but who is now scratching by on $25,000 a year is not only less economically productive, but also likely to be depressed, angry, and looking for someone to blame. None of these things are good for the nation’s health, or his own.

Requiring corporations to pay into this retraining fund not only provides additional money, obviously, but it also requires the corporations to absorb some of the cost of their decision to move that job to a country with cheaper labor, rather than forcing the public to pay the cost while the corporation enjoys all of the profits.

The tariff itself is not intended to be a barrier to international commerce, but simply to add a little friction to the country’s economic frontiers, to encourage American money to stay here and benefit other Americans. A slight leveling of the playing field, to help make American-made goods more competitive against imports. Even if (as is likely), all of the increase in the cost of consumer goods were passed on to consumers, the price increases would not be prohibitive. The tariff would add, at most, 13 cents to the cost of a $5 t-shirt, or $625 to the cost of a $25,000 car. (Not much more than the ‘destination charge’ that dealers tack on.) Such a slight increase would not overly upset consumers, who know that the money is going to help them, and people like them.

Fourth, reform the banking industry. Any bank that is ‘too big to fail’ is too big to exist. That is, if a bank is so big that its failure would have catastrophic consequences, and it must be ‘bailed out’ (given huge piles of taxpayer cash, with no strings attached), that bank is too big and should be broken up into smaller institutions that are not a threat to the national economy. No bank should be able to hold the nation’s economy hostage. Restore the Glass-Steagall Act, to protect commercial and savings banks from being looted to fund speculation by investment banks.

Fifth, the educational system is badly in need of a complete overhaul. We have a system designed to churn out moderately-skilled factory workers, but we have done away with almost all of the factory jobs. Without an educational system to turn out workers suitable for a post-industrial economy, the United States cannot, and will not, enjoy long-term economic productivity and competitiveness. The extent of the reforms necessary there, though, are beyond the scope of this letter (we need to throw out the whole system and start over), but vouchers for parents who chose not to send their kids to public school would be a good start.

Sixth, this country desperately needs real healthcare reform. We currently spend more on healthcare than any other country, and get less for it. Growing healthcare costs will consume an increasing proportion of the GDP in the coming years, dragging down the whole economy and pricing many families out of healthcare entirely. As with education reform, though, a detailed breakdown of what is needed is outside the scope of this note.

This plan would reduce the Federal budget by about $650 over the next three years and add about another $275 billion per year in revenue, cutting the deficit by $925 billion. (More or less, from some quick calculations on a piece of scratch paper.) Calculations for that three years would be a bit more complicated, as the military budget would still be shrinking, and a portion of that savings would be allocated to the worker retraining fund, but I think it is still a healthy improvement to the budget. It would also provide $367.5 billion over those three years to educate and train currently unemployed workers, getting them back to being productive members of the workforce.

I’m afraid this isn’t a deeply thought-out program, just a few brief ideas I’ve typed out over breakfast, but I think they would make a good basis for further public debate and I hope you consider it an adequate response to your query. Thank you for asking.