Think of the economy as a pot of boiling water. Prior to the meltdown in 2008, is was simmering nicely, perhaps even boiling. But with the failure of Lehman Bros. it was a constriction of capital; or a decrease of fuel or flame, applied to the pot, because liquidity became unavailable when the bank shut down, that slowed the economic system along with the rest of the banks. Companies, to conserve cash, laid off workers en mass. This was unprecedented in its immediate timing. It created a liquidity scarcity because a major bank that businesses and trading houses used was allowed to fail. Yes, the subprime loans had something to do with it, but it didn’t have to bring the whole house down the way it did. If a program is too aggressive the program is throttled back---not force a bank, which major businesses relied on, to fail. But there’s plenty to read about Lehman, and it’s not about Lehman to understand our current dilemma.
In order to get the pot boiling again a larger flame would have been required to overcome the time the flame was lowered just to get back to normal. Think of your pot of boiling water that you turned the flame off. Except that the flame (the $800bil stimulus which almost half went to tax breaks, some to municipalities to keep them afloat and keep jobs, some to unemployment benefits, some to construction projects thereby creating jobs) wasn’t turned high enough to overcome the shock to the system (rehiring those millions of fired people who were able to pay bills and mortgages) and we consequently languish in our recovery because ideology (or, read between the lines, “one term president”, those not desiring to help the president before country) stood in the way of doing what was needed to overcome the stalled economy (create demand for goods and services by creating jobs). This is economics 101. Demand for things is created when people have jobs and they have money to spend. Supply is the slave and doesn’t have to increase if there’s no demand. You can lower tax rates to zero, but why should an employer invest in increasing plant and equipment if he’ll have no way of paying back that investment because there’s no demand?
Now, you can take water out of the pot with the same paltry, decreased, application of heat and eventually the pot will boil again sooner, with less water, rather than later with the old amount of water. Or you can turn the heat higher with extra fuel (stimulus) temporarily, until reboiling returns. But what would be the water we’re jettisoning? Rather than raising the heat in the form of revenues by either higher, (return to pre Bush cuts) more normal tax rates, increased employment, to normal levels, thereby generating more taxes to be paid; the alternative proposed, is to decrease the water in the form of social programs, military cutbacks, decreases in discretionary spending (as opposed to mandatory expenditures like interest payments on our debt); specifically social security, healthcare, education, research, infrastructure, and all the other things that established our standard of living and competitiveness superior and different from the rest of the world.
Sure, we can and should always review expenses for efficiency. But the creep in inefficiency doesn’t warrant draconian cuts or changes to who we are unless that, in fact, is the intended desire. That fits into the agenda of those wanting to pay lower taxes because they feel the less fortunate should pay more for themselves. Remember, to them this is America and we are built on Capitalism; of course we should not forget that not everybody is a capitalist nor can they even participate. The guy working on the assembly line didn’t create the financial fiasco while practicing capitalism; but the guy getting the gazillion dollar paycheck voting for lower taxes is. So let’s be realistic; you want to balance the budget of the mismanagement of management’s mistakes on the backs of the neediest or the lowest on the economic food chain? Some want those who don’t make enough to pay taxes, to “take responsibility” and pay more taxes or their “share”. Doesn’t quite make sense to me. It wouldn’t matter if the top 1% paid 99% of the taxes! It’s who we are that demands these expenses unless the top 1% now wants to change that. It’s the military readiness, the education of our workforce, the scientific research, our infrastructure, among those things that created our leadership and envy of the world. Is this what we should change under the guise of the less fortunate should pay their “fair share”? Don’t wonder too hard why China eats our lunch. Workers have rebelled in the past when required to kiss the feet of the capitalists for creating jobs. And when the capitalists fail, the workers pay for the failure? Capitalists have gotten swollen heads before. How about we should all be in this together as to what makes a country? Sacrifice does not mean those least able to defend their position should end up contributing the most. No one begrudges the Trumps or even the big shot bankers for their earnings; and GE didn’t pay any taxes at all last year. But don’t expect labor to unilaterally pay for the mistakes of management. Should the less fortunate be required to eat less too? We are not in normal times with our high unemployment. It takes extraordinary measures to resolve a solution; not just cut to submission. Was it better to support the auto companies or follow capitalistic ideology and let them go bankrupt? How about repatriating some of that offshore corporate money in a deal that assures they invest in infrastructure bonds like the old war bonds?
Forget the ideological arguments created by statistics and ratios. We’ve been there before. It’s all about increasing demand; and that means jobs. The resumption of business in the form of more normal levels of employment would go a longer way to balancing our budgets; not getting used to excessively high unemployment rates and laying off essential services (removing water from the pot). So how do we get there? Returning tax revenues to pre Bush rates (when we had a surplus which was returned) would also provide more heat in the form of available funds for the operation of the government (and maintaining our standard of living). So, instead, we have an ideological faction that wants to decrease revenues (heat) under the idea that decreased taxes, or more in the pockets of the wealthy, will spur investment, or increase demand; this being called trickledown has been proven a failure more than once under Reagan and Bush 2; hence we are in our present situation. And this desire to decrease taxes and have smaller government is really a smokescreen for decreasing spending in the form of social programs which help keep those less fortunate from suffering. It’s called “Starve the Beast”; and promoted by the likes of a Grover Norquest who now carries the mantel when it used to be Arthur Laffer and his “Supply Side Economics” or also known as “Voodoo Economics” coined by the first Bush. They didn’t work then, they haven’t worked now. Maybe we should risk those potentially “lost jobs” and increase taxes. Increased taxes create jobs too.
Funny, people may hate the Yankees because of what they represent. But they’re America’s baseball team. They hedge their bets on greatness and raise ticket prices to support their business culture rather than cut their salaries and hire what might be perceived as inferior players. They maintain their standards by increasing revenues rather than cutting expenses. They give a better quality product so they get the increased revenues. Why can’t we think the same? Instead, those in the fortunate position of being able to contribute more would rather cut their noses off to spite their faces.
So it’s really a time to make a choice as to what do we want the country to look like going forward. One that works for the country as a whole, or the one that works for a few, as in the Arab states. It’s a time to choose whether old, myopic ideologies work in a time of new problems or do we look beyond the veil of those failed ideologies for what they truly represent and address our problems with an open mind. It’s a time of reflection on who are we, who have we been, what is the best for all as opposed to benefitting a few. We want certain benefits that have made us a country to be envied for good reasons. But those things come with a price. We can return to that; but it takes new ideas, not outdated, disproven, mantras. Think of it in terms of boiling water---it’s simpler to understand than you think.
No Flies !
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