I have talked about this before but it seems that only a few of us were paying attention. Let’s look at our economy like a house. During the George W. Bush years, our “house” looks like a 20-30-year-old house that has some problems. It basically looks good, but is showing some signs of age. It needs some upgrades. It needs a coat of paint and some other modifications to make the house run more efficiently and protect us from inclement weather. George W. Bush did nothing to repair the problems of our “house.” He was warned on several occasions about faulty wiring (the housing market). The house catches on fire.
Barack Obama takes over an economy that’s on fire… literally on fire. The whole thing is about to burn down and he wants to put out the fire. He’s given an allocation of water (stimulus plan) which he states is insufficient to put out the fire. Republicans stand back and smile. They tell the president and anyone else who states the water allocation is inadequate that the economy has been given a huge amount of water. That water should be sufficient to put out any fire. Does this make any sense to you?
Barack Obama and the Democrats did the best they can with the supplies that they were given. The amount of water given to put out the fire was indeed inadequate. The fire is clearly better but it still smolders. Now, before the fire is completely under control the Republicans are stating that we need to fix the faulty wiring (get the budget deficit under control). I don’t think that anybody doubts the fact that we do need to get our fiscal spending under control. The question is should we do it now or after we put out the fire?
Check out this 60 Minutes take on how the middle class isn’t making it:
We have to get the economy going. We have to develop new industry which will hire millions of Americans not over a five to ten year period but now! Arguing over the debt ceiling is stupid… Playing with the debt ceiling is also stupid… Millions of Americans need help now. They need good paying jobs, now. We can do this by simply doing two things – rebuilding infrastructure and pouring billions of dollars into green energy.
EPI puts it this way:
Economic policy must be focused on creating jobs and strengthening the economy, not counterproductively cutting spending or reducing the deficit.
If political circumstances require that additional economic support must come through the tax code, a payroll tax cut would help turn the dial on unemployment in the right direction, albeit insufficiently. Even better would be reinstating the targeted, refundable Making Work Pay tax credit, which was replaced by the flat payroll tax cut. Targeting assistance to families likely to quickly spend an extra dollar would be more cost effective, but either policy would raise disposable incomes and increase demand for goods and services.
But political viability should not be confused with economic effectiveness.
Direct spending generates more economic activity per dollar than tax cuts, because tax cuts can be saved or used to pay down debts instead of increasing current consumption. A dollar of infrastructure spending packs about four times the economic punch of a dollar of income tax cuts. With long-term interest rates at historically low levels, financing overdue infrastructure investments would more effectively increase employment and spur long-term growth.
Finally, let me say this to those who believe that if our government continues to spend money (stimulate the economy) that this would lead to uncontrollable inflation – horse hockey. Inflation is a reflection of supply and demand. If there’s too much demand and not enough supply, inflation is allowed to increase because business will raise their prices for items that are having trouble staying on the shelves. This is not happening, anywhere. Let’s get the unemployment level under 5% and then we can worry about inflation.