Is it Taxes or Demand?

Paul Krugman and his peers must be frustrated.  Even the most simple and straightforward solutions to our economic mess are beyond the reasoning abilities of most Americans, including those we deem to be among our brightest and most talented.  If there was ever an era that begged for the rule of philosopher kings over the rule of the people, this has to be it.

Today’s lead story in the New York Times reports on employer reaction to President Barak Obama’s jobs plan.  Business owners explain that Obama’s proposal  is welcomed but will not change any minds soon.

Why?  Because what the business really needs is an increase in demand.  This of course is where Krugman et al chokes on their morning coffee.  Even simple people like me have been trying to explain this simple fact.

You can give business owners all the tax breaks they ask for, but they have no reason to invest in workers if they have no demand for what the workers do.   But we have been hearing nothing but the tired call to cut taxes on the “job creators.”

So, of course, Obama includes some tax cuts in his plan to placate that crowd.  And what do we find out?  Most employers would use that credit to support hires they were planning to do anyway.  In essence, therefore, the tax cut contributes to the bottom line of the “job creator” and does not stimulate growth.

For the mathematically challenged out there, that’s what has been going on in recent decades.  Tax cuts giving the wealthiest earners among us a bigger break haven’t “trickled down” as planned, but have kept a concentration of wealth at the top.  Trillions of dollars in tax cuts and trillions of dollars in unbalanced wealth in the United States; subtract from one (middle class) and add to another (upper, upper class) and you see how these numbers roll up (literally).

Even for the small business owner, a tax cut means nothing for hiring decisions if there is no reason to hire another worker.  In fact this logic is especially true for a small business.  If I mow lawns for a living and I get a tax cut on any new hire, why would I hire someone who I might need to pay $20,000 in order to get a $4000 credit if I am not going to have the work to generate revenues to cover the hire?  I won’t.

This is such basic stuff that a person has to question the sincerity or the intelligence – or maybe both – of the conservative class today.  What it looks like to many of us is conservatives leveraging economic hardship for political gain.  In other words, bad times are good for conservative politics – they scare and mislead the public – and change social and economic policy in the process.

But let’s get back to this demand argument and President Obama’s plan.

Again critics are showing a short-sighted understanding of the plans benefits.  A large part of Obama’s plan is putting construction workers on infrastructure projects.  One way or another, if they United States expects to remain an economic leader, we need to upgrade our 1960s era infrastructure.  The construction industry and all that supports it – suppliers, designers, engineers, financers – need work.  Put a solution to that need.  That’s what Obama’s plan supports.

Of course if you sell refrigerators this stimulus plan is not going directly to you.  You won’t be getting a contract that will enable you to hire new workers.  But your customers – your market base – will be getting jobs…and money.

Construction workers are more likely to spend their new or increased income (unlike the rich) and there is a ripple effect here, called a multiplier.  Dollars given to people who
will spend increases the value of those dollars.  (This holds true for tax breaks, too.  It would be better for the economy to tax the working class at a lower rate than the fortunate class.)

Ultimately everyone is better off.  The business owners now complaining about the state of the economy and arguing that they cannot hire will have legitimate economic reasons to hire.  It will be in their best interest – i.e., growth and profits – to add to their workforce.

Workers will be better off because they will have living wages again.  They can make investments and purchases consistent with what had become a traditional middle class
lifestyle.  (Unless, of course, Republicans get away with gutting education, social security, and healthcare programs, which they are eagerly trying to do now.)

President Obama’s Jobs Plan is a necessary investment and provides what the private sector cannot provide now:  Job opportunity.  In time the jobs created by our government investment will translate into demand and growth in the private sector.  It is the sort of spark we need to reunite our overall economic engine.

I am going to write more about this later, but it simply defies logic and reason to side with the complainers on the right.  NOTHING, ABSOLUTELY NOTHING WORKS FOR
THEM!  And unfortunately for us, too many Americans are not bold enough or smart enough to push them aside.  You want America to work again?  Stop voting for Republicans.

 

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One thought on “Is it Taxes or Demand?

  1. Pingback: America’s Real Job Creators « A Little Tour in Yellow

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