Jobs, tax cuts and economic stimulus

Dear Friends,

As I have said before, at this point in time the two most important things that President Obama, Congress and the American people need to focus on are getting out of the Iraq and Afghanistan wars and creating more jobs in the United States.

The Republicans (and for reasons that escape all logic and understanding some people who call themselves Democrats) believe that tax cuts, especially tax cuts for the rich are the way to stimulate the economy and ultimately create jobs.  I, as an unabashed liberal, disagree with that position both on the grounds that it is factually incorrect and that it is bad for our country as it increases the wealth disparity.

Before proceeding, I want to discuss a distinction that unfortunately gets blurred way too often.  Republicans often say that by stimulating the economy, jobs will be created.  I, on the other hand, am more focused on creating jobs which will then stimulate the economy.  The most common method used to determine if the economy is being stimulated is to look at changes in the GDP.  The GDP is intended to measure economic activity of all kinds and therefore does not necessarily reflect what is happening to employment.  In recent memory, we have had what are commonly referred to as "jobless recoveries".  Jobless recoveries occur when the economy has recovered as measured by growth in the GDP or perhaps the stock market or corporate profits, but the unemployment rate has remained unacceptably high.  My point is that we know that the economy can improve even without reducing unemployment.  We also know that if the unemployment rates drop, the economy will improve, and that with sustained growth in jobs that provide a reasonable wage and benefits comes a smaller disparity between the richest Americans and everybody else.

As we approach Labor Day, there are two issues that are gaining attention that relate to creating jobs - extending the Bush tax cuts and an additional stimulus package.  The New York Times published two excellent op-ed pieces today that address these issues.  The first was by Robert Reich (here) and the second was by Paul Krugman (here). 

Mr. Reich's thesis is that there is a structural problem with our economy that must be fixed if we are to see strong sustainable growth in our economy.  The disparity in wealth in America has been very well documented.  Mr. Reich cites the following results of one study: "In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income."  Mr. Reich reaches the following conclusion:

The Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

Mr. Reich then suggests a number of policies that would result in providing a more equitable distribution of the wealth while not increasing the deficit.  Needless to say, some taxes were included in his suggestions.  He does not suggest that the Bush tax cuts for those earning over $200,000 be permitted to expire, but that would certainly help achieve a broader sharing of the wealth.  Mr. Reich concludes his article as follows:

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

I am a strong proponent of letting the Bush tax cuts expire for those who earn more than $200,000 a year.  Only a very small percentage of Americans earn over $200,000 a year and those who do will not change their spending habits as a result of the additional taxes that they would pay.  We had incredible economic growth when marginal income tax rates were 70% and even 90%.  We are no where near those rates today and those at the top of the wealth ladder can afford to pay a little more. 

It is not just liberals that believe that we should let the Bush tax cuts for the rich expire.  Even Alan Greenspan is against continuing the Bush tax breaks without paying for them which is something that the Republicans refuse to do by arguing that the tax breaks will pay for themselves.  An article in the Huffington Post (here) reads as follows:

Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being "disastrous" for the economy.
In an interview on NBC's "Meet the Press," Greenspan expressed his disagreement with the conservative argument that tax cuts essentially pay for themselves by generating revenue and productivity among recipients.
"They do not," said Greenspan.
"I'm very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money," he said. "And at the end of the day that proves disastrous. My view is I don't think we can play subtle policy here."

It is nice to know that there is something that I agree with Alan Greenspan about.

Paul Krugman's op-ed piece in The New York Times today (here) makes an excellent case for an additional and larger stimulus.  Mr. Krugman's opening paragraph echos my sentiments exactly.

Next week, President Obama is scheduled to propose new measures to boost the economy. I hope they’re bold and substantive, since the Republicans will oppose him regardless — if he came out for motherhood, the G.O.P. would declare motherhood un-American. So he should put them on the spot for standing in the way of real action.

Mr. Krugman goes on to describe how the initial stimulus while too small had a very positive impact, why the conservatives position against the stimulus have proven wrong over and over again and why we need a new aggressive stimulus program.  Mr. Krugman is absolutely right as he was when he objected to the original stimulus for being too small.  President Obama may not be able to get a big stimulus through Congress for political reasons, but that does not mean that he shouldn't try and be willing to fight hard even if he loses.  He needs to do that for two reasons.  First, it is the right thing to do.  Second, he will regain the support and respect of many people who are looking for a leader that stands up for what he believes in.

As Labor Day approaches we should remember that it is the vast middle class and the workers that have been the backbone of this country and our economy for years.  We need to work together to give those people the share of the country's prosperity that they deserve.

Thanks for reading and please comment,
The Unabashed Liberal

Depressing August

Dear Friends,

August has been a very depressing month.  The politicians, the pundits, the people have all been distracted by the community center near ground zero, Glen Beck's rally, meaningless primaries, the most recent goings on with the Hollywood stars, etc.  Right now there are two things that are critical to our country's long term future - jobs and wars.

The "combat mission" part of the Iraq war has come to a close because we agreed with the Iraqi government that it would by September 1st.  So now we have less than 50,000 troops in Iraq.  We should not have any.  The Iraqi politicians have not been able to form a government in over 6 months.  The Iraq war will end up with us leaving and hoping that something good will happen.  It is possible something good will happen, because the Iraqis have had a civil war and are now tired of that but they do not seem inclined to try to unify their country.  But we are not ones to talk, the political climate in this country is completely divisive.

Unfortunately, my guess is that in a few years after many more lives have been lost and ruined, we will leave Afghanistan in much the same way.  Nobody has said clearly what victory is because there can be no victory.  We can kill enough people to provide some calm on the surface so that the politicians could do something but all they do is continue to line their pockets with graft money and fight to maintain their power.  In this country we have more genteel words for it but many of our politicians are doing the same thing - raising obscene amounts of money from corporate interests and working to maintain their power, rather than focusing on what is good for the country.

So the wars go on and the military industrial complex continues to control what we do in the world.  Apart from an occasional voice of reason in Congress, our politicians continue to act at the beck and call of the huge corporations that fund their profits and their political contributions through military contracts.

At the same time, our politicians are not willing to even discuss what we need to do to create the jobs needed to put Americans back to work so that our economy can recover and vice versa.  The New York Times published an op-ed piece by Laura Tyson today entitled "Why We Need a Second Stimulus" (here).  She explains exactly why we need a second stimulus in clear logical terms.  Why can't our President and the members of Congress that call themselves Democrats make such an argument?  Her position is sound economics, it is sound policy, and it is great politics.  It does require a leader with an a ability to communicate and energize people, a leader that is bold and inspiring, a leader that is willing to take risks, a leader who will challenge the naysayers, a leader who respects the electorate, and a leader who will fight for what she/he believes unwaveringly.  Apparently, there aren't any of that type of leader around.

Bloomberg Business Week reported (here) that

China, the world’s biggest polluter, may spend about 5 trillion yuan ($738 billion) in the next decade developing cleaner sources of energy to reduce emissions from burning oil and coal.
China erected more wind turbines in 2009 than any other country and may install a record 18 gigawatts of wind-power capacity in 2010, Bloomberg New Energy Finance estimates show.

On August 13, 2010, Fortune published an article entitled "Renewable Energy:  The Government Piggybank" (here).  The first paragraph reads:

If the government truly wants America to go green, it's going to have to shell out to support the nascent but important sector of our economy. Green jobs and renewable energy were boldly funded in the stimulus bill, yet whenever Congress and the Obama administration need to scare up capital to fund some other program, they chip away at the initial $37 billion allocated for climate and energy-related efforts.

The article goes on to say that in order to find the $26 billion for the recently passed bill to help the states that $1.5 billion of that came by reducing the green energy allocation of $37 billion.  I think that the help to the states was really important but why would we reduce the already paltry amount that we are providing to encourage green technology and jobs?  But if the Chinese are spending $74 billion a year and we are spending less than half that with no long term plan, what difference does $1.5 billion make?

If the Chinese beat us at developing green technology which they are well on their way to doing, we will never recover the jobs that we have lost in this country.  The United States has always been a technology leader, but we are falling behind while our politicians find ways to distract us rather than facing the realities of a world in which we are losing our role.  If we are to regain the jobs that have been lost and provide long-term economic growth and job security, we must be willing to stimulate the economy.  There are two great ways to do that.  One is to improve our infrastructure and the other is to invest in green technology that will produce jobs both now and well into the future.

The President of the United States is the only person who can provide the leadership that we need to provide a second stimulus, to invest in green technology and get out of the Iraq and Afghanistan wars.  Unfortunately, the current President seems unwilling to provide the leadership we need.  Frank Rich wrote a great op-ed piece in The New York Times today (here) in which he pointed out that President Franklin Roosevelt and President John Kennedy both faced well financed right wing fringe challenges and that both of them prevailed by being leaders.  He concludes that President Obama while facing the same challenges so far has failed to lead.  Here are the ending of the piece:

When wolves of Murdoch’s ingenuity and the Kochs’ stealth have been at the door of our democracy in the past, Democrats have fought back fiercely. Franklin Roosevelt’s triumphant 1936 re-election campaign pummeled the Liberty League as a Republican ally eager to “squeeze the worker dry in his old age and cast him like an orange rind into the refuse pail.” When John Kennedy’s patriotism was assailed by Birchers calling for impeachment, he gave a major speech denouncing their “crusades of suspicion.”
And Obama? So far, sadly, this question answers itself.

Thanks for reading and please comment,
The Unabashed Liberal