5 Points on the Critical State of the Economy
Here is my general assessment of where we are from an economic point of view, putting the political dynamics mostly aside for the moment.
I believe that we should do much better on fiscal policy than we are doing as a nation.
(1) There is no room, nor case, for broad-based personal or corporate income tax cuts or credits or rebates. (Much smaller temporary subsidies of house and auto purchases, especially on fuel-efficient cars, make a little bit more sense, though I don't love those either). The deficit is hemorrhaging and will do so for years to come. Despite some ideological claims to the contrary, there will be no scope for sizeable cuts in spending as a percent of GDP, since five core areas (defense and homeland security, veterans affairs, social security, health care, and interest on the debt) take up all federal revenues, meaning that everything else in the budget (education, energy, science, transport, housing, income support, diplomacy, courts, public administration) is effectively on borrowed funds. And with aging, health care cost increases, etc., the underlying chronic deficits will tend to rise, not fall. We will therefore need increased not decreased taxes. Finally, note that temporary tax cuts are likely to have little stimulus effect, even if they could be afforded;
(2) Immediate and sizeable spending increases in the stimulus package should be directed to a few areas: significant support for our crisis-ridden state and local governments, especially for health (Medicaid), education, and other urgent public services; income support (unemployment, anti-poverty including food stamps and child nutrition); health care coverage for the uninsured (as well as adequate Medicaid funding mentioned earlier); and a significant multi-year rollout of infrastructure of all sorts (roads, rail, other mass transit, ports, water, energy, broadband, etc.)
(3) Future taxes (and revenues as a share of GDP) will have to increase, partly by rolling back the Bush tax cuts on the wealthy (certainly), and partly by introducing new revenues on carbon (e.g. by auctioning carbon permits or taxing carbon) and eventually I believe by introducing a VAT or something similar.
(4) The claim that we should reject infrastructure spending because it rolls out over several years is disastrously wrongheaded. We need a buildup of serious high-return public investments, and we can and should start now. The added stimulus will be useful in future years, but even more useful will be the infrastructure! The most rapid spending will come from sizeable immediate transfers to state and local governments, to the poor, to those without health insurance, and the start-up of some infrastructure spending, and this initial boost will be enough to "buy time" for a sustained and meaningful growth in infrastructure in later years.
(5) We need a medium-term expenditure framework in which budget and tax policies are presented with a five-year time horizon. In such a medium-term framework, we would have significant deficit spending this year -- yes, perhaps $1 trillion in total not counting TARP -- but then falling over time by a programmed step-by-step increase in government revenues (rollback of tax cuts, new carbon levies, closing corporate loopholes, and probably introducing a modest VAT). The spending side will eventually taper off in certain categories (e.g. the emergency transfers to the state and local governments), but overall medium-term levels of public spending are likely to increase from 21 percent of GDP to perhaps 24 percent of GDP. Revenues should increase from around 18 percent of GDP to around 24 percent of GDP over a period of 5-7 years.
Such a package would require several weeks to put into motion, and some parts might require several months, but that would be time well spent if we would thereby restore a sensible fiscal framework. It would be better to set the medium-term direction of fiscal policy, and to get it right (significant short term stimulus through spending not tax cuts, rising public investments in infrastructure over several years, and a rising trajectory of taxes relative to GDP) over the course of a few more weeks and even months, rather than to do things haphazardly and unconvincingly within a deadline of a few days.
Of course, to give the administration its real due, it might be impossible to achieve anything if the opposition proves unmovable to this kind of package, so taking something highly flawed now rather than a better framework that is never enacted (!) would make sense. I regret and worry, however, that we haven't yet had the kind of public discussion about what's really needed for the medium term, and how we can get there. I don't really know if it's "now or never." If that's true, let's have the legislation now. It just doesn't feel right to me, however. And I do worry that the tax cuts and coming mega-deficits might well frustrate a subsequent convergence on a more meaningful and sustainable trajectory in the coming months and years.
Finally, this is not meant to be a comprehensive agenda, only a sketch of broad macro policy. We need major systemic reforms in health, energy systems, foreign policy, science and technology, and much more, which will have significant budgetary implications, but which requires ample public debate and policy formulation.
Finally, finally, there is a massively important global context which is not even discussed in our current debates. The role of Asia in helping to get the U.S. and Europe out of this mess should not be underestimated. Attacking China is completely wrongheaded in that perspective. We need policy coordination, not bickering. There are important exchange rate, monetary, and financial policy considerations at a global cooperative level which can and should speed recovery.
For more commentary come to the State of the Planet blog.
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Dont worry America, in the immortal words of Sir Winston Churchill, ' America always does the right thing, after they have exhausted all other possibilities' :)
The real problem is most Republicans. They actually believe what they're saying. They think deregulation (lawlessness), privatization (adding profit to the cost) and tax cuts (for the wealthy)(p
Republicans don't believe what they're saying. They know that their ideas are the worst possible for the economy at large - that's why they're terrified of even allowing rational discussion. They know that they can't compete with sensible policies so they will do everything they can to prevent them from being tried. People don't get hysterical like that when they think their opponents are wrong, only when their opponents are right.
Let me explain my Mass Transit perspective. Our economy is entirely built on families using their automobiles to live their lives, to fulfill their portion of "...Life Liberty and the Pusuit of Happiness.
Mass transit reduces the cars and trucks on the road. If it's mandated, or forced, or taxed into peoples lives so that they can't aford to drive anylonger those same citizens will fail to pay their mortgage and move away from the state who imoses this on them.
Those communities that are supported ENTIRELY by mass transit, and the transit system is luxurious and comfortable and desired, those same citizens STOP driving ENTIRELY !! Look at St. Louis.
Automakers have yet to come up with an alternative that is both affordable, energy green, and wont get you killed on the average American highway. Thanks in large part to G.W. and the last 8 years.
"Look at St. Louis"????? There is no more auto-centric community in America! Mass transit is being de-funded here in St. Louis MO. A few doctors living in Clayton that use Metro-link to go to BJC hospital to work is not a good case for transit!!!
I don't use a car to get around. And I live in LA, the most car-centric city in America. I've arranged my life so I wouldn't have to. Do you realize how much less I spend per month than you fools who drive everywhere? No car payments, no upkeep, no gas, no insurance. I live like I'm making thousands a year more than my pay grade. I'm also fit and healthy from walking every day to and from work. It would be nice if LA had better mass transit. But I kinda don't want everyone else to discover how much better their lives would be if they weren't burdened with the idiocy of a car. Pardon me while I do my superiority dance.
Pippen, our economy is not entirely built on families using their automobiles, I have three of them and very seldom use them to get to work at my downtown location.. I cannot agree that the pursuit of happiness or a slice of Freedom depends on Automobiles, for one every time I get the insurance bill I lose a little of both. I can agree that the imposition of draconian measures to discourage driving and car ownership is not the right way to go. At the same time retrofitting the mass transit system to the actual geographic needs would be very productive and is the right way to go. Both improving Mass Transit as we make our Automobiles more energy efficient are needed.
Some Infrastructure is pointless, like mass transit. Mass transit is like morphine injections to an athlete while their running the olympics. This economy is based entirely on BIG OIL. Big oil has driven the entire focus of this country from our stock market, our military, our foreign policy, our environment, our energy policy, steel, train, trucking, shipping, ..........
And now we're trying to turn the ship (the Titanic) around to avoid an iceberg that is bigger than Utah. We saw the iceberg 20 years ago and each captain refused to make course changes because the elite passengers were goading and paying them to stay the course.
It's too late. Brace for inpact. Sound the collision alarm. All I can say is that if you saw the movie Titanic you know what happens to the poor bastards below decks.
Let the companies who invested in failure, FAIL !!
Spend money on upcoming NEW companies that can help us rebuild our financial structure.
You make some very good points, but you completely ignore the fact that widespread use of mass transit dramatically reduces energy uses. Getting millions of one-passenger vehicles off the road will spectacularly reduce our dependence on foreign oil, in addition to being good for the environment. If the vehicles used for mass transit can get their energy from electricity directly (e.g. electric buses, trains), rather than burning fuel to generate power, then the use of oil (and the profits of "BIG OIL") go down exponentially rather than geometrically.
Everything you're saying about how the problem has been ignored for years is true. But I don't understand why you want to now ignore a critical part of the solution.
One of my points is that "the economy" or the Titanic as I have referred too it. Is ENTIRELY defined and built (credit, stocks, finance, foreign investment yadda yadda yadda) on the use and influence of Petroleum.
If you start telling the Titanic (errr I mean the U.S. Economy) they should stop using Petroleum to fuel their energy needs your not just saying buy an electric car your telling the entire staff of engineers who built the Titanic, the Owners, the Investors, the Crew, the Captain, all of the Officers aboard, and "some" of the passengers
How do you think their going to react ? Going green is not as simple as day time television makes it sound. Those are just sound bites to help sell beer. Stop watching television news, that's just an ongoing advertisement machine, it's not " information ".
Nothing Congress or the President does will work. Why ? Because the basic flaws in American governance and financial controls are poisoned by corruption, greed and pure anti-American owners.
You can't legislate against an entire financial structure built in and around greed and self interest and controlled by Godless evil men and women. If the owners of these institutions had a fraction of moral or ethical fiber coursing through their veins we would have the ability to recover. They don't and we're doomed.
We'll be throwing money into a slave market expecting the slaves to be happier because of the slave owners making more money while they hold their ROI in offshore bank accounts.
The French had the best idea. Le Guillotine ! Viva La Liberte' !
The slave owners are paying the legislators to ensure they keep their slaves. And even some are paying to ditch their slaves for slaves overseas now !! And it's working !! We can all go from Slaves to beggars without masters, which is worse ?
Right on.
But I do have question: Are they "godless evil men and women" or are they wicked? There is a big difference! I tend to believe the latter.
Peace
Love
Revolution
Of course there is room to cut taxes! Who do you think you are kidding!
We have to CUT SPENDING first. Let's start with ending our militaristic adventures overseas. And how about shutting down the Federal Reserve and adhering to the Constitution that says only Gold and Silver should be used to back currency. Do you know why it says that? Because there is a limited supply of each commodity. The Founders knew Government would always want to spend spend spend and take take take from the lower class. They said only Gold and Silver to prevent our Government from spending money wherever and whenever they want rather than having the Fed print money out of thin air.
There is only one solution to our mess and that is cutting Government Spending!
You are right. We are spending how much money on the military?? Cut that down by at least half, and there's the deficit that bush left us. Then, of course, we've got to come out of the economic mess that bush left us, so we will still have to increase taxes on the highest earners (including counting capital gains as income!!!!) say, back to halfway between the Clinton tax rate, and the Johnson tax rate, which would put us at somewhere around 50%. That'll STILL give them GOBS of money, while also removing the deficit completely, allowing us to pay off the $10 trillion in Republican debt, AND pay off the SS trust fund, AND provide Medicare-for-all style single payer health insurance!
LeftRight -- I strongly second your opinion.
That is ridiculous, this is a systemic flaw in the system, which conservatives would rather hide beneath artificial bubbles and tax incentivized profit margins, rather than actively engage to the detriment of their people grinding economic policies. Adam Smith wrote 2 books "The Wealth of Nations" and the "Theory of Moral Sentiment", conservatives worship the first, and avoid the second like the plague. The argument that government is the problem is a poison pill, however the growth advantages of a "free market" system are patently better than any other option. By disregarding Smith's "ToMS" and glorifying Smith's "WoN" conservatives have pushed the nation towards total Plutocracy, which over time will systemically lower the cost of labor, while raising the cost of goods and services, in the long run consumption will suffer, competition will diminish, and companies will grow too large to fail and dictate policy over "We the People". Government should not be in the business of protecting corporations over the public will, and well-being. So its simple whom to you want to dictate policy corporations who seek profit first as their prime directive or Government which is beholden to the will of the people over profit. Since I don't have a democratic say in corporate governance I'll go with the body I have a vote in. Nationalize the banks, let the others fail, wipe out shareholders, and spend my tax dollars rebuilding every state in the union.
If I wanted to pay for California's budget deficit, I would move there. If they were smart, they would put a balanced budget amendment requirement on states to get federal assistance.
So if a state has to balance the budget what should they cut? How about the fire department in your town? Maybe the cop that patrols your neighborhood? Or maybe some teachers where your kids or grand kids go to school? Oh I got it, lets screw the poor some more, they can eat on 2 dollars a day and don’t need medical care or birth control. But then when the crime rates go up you will be wishing we kept the cops.
California, as well as most states, has a balanced budget ammendment of its own that requires only balanced budgets may be passed. Republicans are loathe to pass any new taxes or income generators for the state and Democrats don't want to cut money for schools, healthcare, police, etc.
rocketman69 you are already profiting from California's deficit. we pay $50 billion per year more to the federal government than we get back. without that we would have a surplus, not a deficit.
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(1) There is no room, nor case, for broad-based personal or corporate income tax cuts or credits or rebates.
How do you create demand if people that are working don't have disposable income and are supporting everyone else with their taxes?
(2) Immediate and sizeable spending increases in the stimulus package should be directed to a few areas: significant support for our crisis-ridden state and local governments, especially for health (Medicaid)
I think you need to investigate Medicare and Medicaid because we are $53 trillion in the hole, I would suggest the movie IOUSA from Bill Clinton's head bookkeeper.
BTW, mass transit is a joke in many places in America, Minnesota 2.8% of people use it and people don't want to.
First, since nobody is paying more than 36% of their income into taxes.....
Second, spending is the best choice to improve the economy, provided that it's the right kind of spending.
Third, mass transit is a joke not because people don't want it, but because it's been made to be a joke! Right now I spend around one gallon of gasoline each way to work. I also spend around half an hour. If I were taking public transit it would cost me close to 8 dollars each way and take more than two hours. If they would make it more reasonable, I would utilize it!
Do you know what property and sales taxes are? How about the fees to various government agencies?
1.) Your comments disregard the massive job losses in the nation and the spending and consumption habits of those individuals in particular. The point here is to rescue the economy not your personal finances, maybe you should cut your spending rather than ask for a handout, when others are in more dire straights (i.e. unemployed) due to a failure in coporate responsibility and (government regulation).
Tax cuts have the lower multiplier effect of any stimulus measure proposed, the point of any stimulus is SPENDING which creates DEMAND, tax cuts do not create demand, consumption does, and to suggest that your tax break would be spent on new consumption rather than saving is "wishful thinking" and "disingenuous"
I agree with your second and third points State and local government should be assisted and Medicare/care should be investigated and refined.
Mass Transit however has other implications, besides lowering our consumption of foriegn oil, mass transit construction would employee thousands of people and offer thousands of other more diversity in employment options by increasing the range of their commutes, fuel cost for transit systems are significantly lower than all other forms. If Minneasota only has 2.8 people using mass transit, then I agree they should be funded, but that's just Minnesota, the East and West coast could benefit from them.
Ever drive around (or live in) one of those towns that used to be prosperous: Montclair, NJ, the San Fernando Valley in LA? You see big houses that are run down, old Volvos and Beemers. The lawns get overgrown, the houses need painting, but the people inside are still the upper class folks they used to be. They drink their scotch, go to their yoga (maybe now at the Y instead of the expensive gym). They do their best to live the life they grew used to when they were well off.
The United States is a lot like those towns: our roads are shot, our bridges are failing, our military is used up. We are outclassed in medical care by countries with a tenth of our GDP, our internet services and phone plans are laughing stocks in Europe (where you have dozens of providers at speeds that are doublethat available in the US for a fraction of the cost). Rumania makes our phone infrastructure look quaint.
We have spent the last 40 years living on borrowed time. At some point everything will come to a halt. When our bridges, ports and roads are useless, it will be past the time to replace them.
You can't keep eating your seed corn. You can't keep spending your capital. To even try is foolish and the insistence on doing so is pathological.
The Republicans need rehab as much as the country does. It's time to wake up and smell the crazy.
BONKERS!!!
Good points, especially about the Internet & health care disparities between the US and Europe. Would not bother rebuilding the military, however. Scale it down 60% and step up int'l diplomacy. Like every other 21st century world power. That money would be better spent in funding Obama's community projects. Per Europe and Japan (not that they have a choice), recognize that our military is cumbersome and obsolete as a fiscal black hole. Not to mention costly in intangibles such as the long term harm to many soldiers' and civilians' (Iraqi, Afghan children) brains from blast concussions.
Not a bash on Obama, i'm just saying...
You cannot simply keep raising taxes and expect businesses to continue to hire workers and expand! They reach a point where they go out of business since they cannot produce at a profit.
Deficit spending only makes sense if the debt being taken on can pay off the debt being added. Food stamps and airport security equipment are sunk costs and provide no real ROI.
Eliminating payroll taxes puts money in people's pockets and eases suffering. Also, why no mention of foreign policy cuts, foreign aid cuts or NASA cuts? Those are all wasteful..
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Food stamps help people who cannot afford to buy food to eat, which allows them to be productive and allows their kids to pay attention in school. They help keep people from becoming weak from malnutrition and ending up in medical care facilities.
How long have you spent standing in lines at airports that have insufficient security equipment?
Defense spending cuts? Now, that actually makes sense. We could cut our military spending 50% and still spend five times what the next biggest spender spends. It seems much too easy for us to go to war when we have the idea that our soldiers are nearly invulnerable. Perhaps knowing our troops would actually be in harms way would cause us to limit military actions to only those that actually defend us.
So where were you for the last eight years as the Republicans ran up the biggest national debt in the history of the world? Why was is just great to give away 750 billion dollars to unaccountable banks, to spend 650 billion off budget on George Bush's wars? To give away a 1.4 trillion dollar budget surplus when we KNEW we would need it for infrastructure spending sooner rather than later? Just so you can be a tax cutter? But it's not OK to use similar amounts to save the country?
How can you complain about us constantly raising the taxes when they've been low for three decades and all that we've seen is massive debt!
The only way I will agree with you on the tax issue is that you say higher taxes will cost workers jobs and businesses will not reinvest or expand. But the only reason I agree is because higher taxes will have to be paid from someplace and that place will not be profit or Big Dog Bonuses.
Every business is obsessed with ever increasing profits. The profits are not sought to make the company stronger, they are required so the Board of Directors can justify gigantic pay packages. If times are a little tough, instead of taking a little less bonus, they will slash jobs or close plants to make the bottom line look better in a quarter so the bonus money still flows. And quarter after quarter and year after year of these kinds of cuts have left most companies with skeleton crews and massive quantities of Contractors that have no skin in the game. But the profits look good!
I just re-read your post, and found a few problems with it.
First, how can you claim that foreign policy, or foreign aid, or even NASA are wasteful? In the case of the first two they are providing direct benefit to the USA, in the form of goodwill from the rest of the world. Goodwill that is in disturbingly short supply due to bush. In the case of the third I can think of literally DOZENS of devices that we would not have right now were it not for NASA!!
Second, you speak of eliminating the payroll taxes. You DO know what the payroll taxes cover, right?? That's right, Medicare and Social Security. That's ALL that they are legally allowed to go to (though the US govt has been borrowing the monies in the trust funds....) If you remove those, then you cause the SS crunch to not occur by 2040, but by TODAY!!
If we build up our infrastructure, like upgrading your kitchen, then like your house, we as a country will be worth more and we will get a better credit rating. Since we only pay interest on our borrowing, gee that sounds familiar, didn't they say that is not a good idea for home owners, but good for the country? We will have to continue borrowing, but at perhaps lower rates because of our better credit rating. See, it works for countries just like it does for people.
This is the most sensible assessment of the recovery needed by this economic crisis.
Not all tax cuts are good.
Not all taxes are bad.
Hundreds of millions of working people are going to save this country. Hundreds of millions of workers are going to pay taxes on their income. But they can't pay taxes on an income that they don't have.
We've only got 300 million people in the US. How many of those 300 million work?
Each stock transaction should be taxed by one tenth of one percent which would pay for 100 % of the stimulus package. furthermore it would fund a stimulus package each year and we could fix everything that needed fixing year after year.
Interesting. Is that backed by facts or speculation?
I don't see how making the market less liquid would help.
So, if you want to buy a car, you have to pay sales tax, but if someone buys interest in a rental car company that owns thousands of cars, they don't pay any tax?
Why would you want to tax articles that are actually produced by industry and thereby deter production? I guess someone has to pay taxes, why not make it stock market speculators?
Check it out at: www.nader.
Do you see how there ain't no free lunch?
Because the market, no matter WHAT you've been told, is NOT the economy! The economy is out here in the rest of the world making things, and selling things, and building things, etc.... The MARKET is investing (theoretically) in the people out here in the rest of the world, but in actual fact it is simply a way for the rich to buy stock from other rich, and then sell it to still more rich at a profit!
Would it not be better to have a heavy tax--close to 100%--on capital gains from the trading of stock and, conversely, a very light tax--close to 0%--on dividends received from stocks held? Investors would then receive real money from the profits of the company in which they invested instead of speculative money from speculators. It seems to me that this would return true investment to the primary position over speculation, eliminate speculative "bubbles", stabilize the market, promote a longer view of company operations and place the burden of taxation on unearned ("rent") wealth, which is where it belongs.
Intriguing idea. It sounds like a plan to tax wealth rather than income.
What is destroying our economy and the world economy is the Republican's insistance of ideological purity and a win at all cost attitude. To the Republicans, tax cuts are the only way to solve every economic and social problems in the universe. They say, to cut the deficit we need to cut taxes, and that a budget surplus (which is unfair to taxpayers) must be reduced by cutting taxes. They are also willing to sacrifice the world economy for the sake of their "Principle
The Republicans deny the concepts of "social forces," and "public goods and investment
Somebody tell me why a country cannot be allowed to make a profit? Who would not be for free government?
If you mean by profit a budget surplus, then I don't see anyone here saying that government should not be allowed to make a profit.
If government were free, then I would be for a lot more government, but like just about everything else, government is never free. Eventually, government spending has to be paid back.
If it were free to help the poor, (For example, if it were costless to give food stamps for the poor), they would still be against helping the poor because they think its immoral to do so. Thus, in this case, Republicans are against government even though its free.
You are dead wrong! States are the most wastefull spenders. They will not cut jobs but only use federal monies to support cronies. Aid to states and so called local government needs to be parsed out with many strings attached. Just giving money to states and towns etc.. without any strings is a very very bad idea. Our government in Vermont for instance is so corrupt that it is unlikely that any monies will be used to gain employment but instead will be used to keep the obese population of state workers in their jobs doing the nothing they have always done with other peoples money. Obamas plan will fail because a job corp needs to be created for everybody just not the state and local governments.
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