Not the Way, Either

As Our New Fearless Leader is developing his plan to spend hundreds of billions to help the economy, an op-ed piece in yesterday’s New York Post suggests an alternative: substantially cut Federal taxes to ‘energize the added investments, new hiring and extra risk-taking needed to move our economy’s pace from tepid to torrid.’

I’d like to believe that this would a better approach than Obama’s efforts to remake the country in his own image.  But the short answer is, ‘Isn’t that what our current Fearless Leader was pursuing for eight years, that got us into this mess?’

Either method involves Brobdingnagian (the word ‘huge’ simply doesn’t cut it) deficits, which will have to be paid for in the long run with higher taxes and/or inflation.  Moreover, the rest of the world, which has been subsidizing our deficits for the last few years, has been reluctant to continue, as they need the money for their own problems.

More specifically:

  •  Added investments: in what? Nail salons?  If someone wanted to make a large infrastructure investment, in, say, a power plant, a transmission line, a factory, or a railroad, they would face a daunting gauntlet of regulations and community opposition.  Moreover, investors today want don’t want to wait years to see their profits.  This would be especially true if the tax environment would be expected to change in the next few years.
  • New hiring: only fools hire employees these days.  It’s much cheaper to hire independent contractors or outsource. While hiring someone as a contractor is better than not hiring him at all, part of our problem is that employment is perceived as impermanent: if you believe that you can lose your job at any moment, you’re going to limit your spending to the necessities.
  • Extra risk-taking:  It’s entirely honorable to try, and fail, and take your own lumps.  The problem arises when people take imprudent risks, don’t recognize the initial signs of trouble, fail en masse, and then expect the government to bail them out.

The basic problem underlying our difficulties–which neither Presidential candidate addressed–is that labor is seen as a cost to be minimized, rather than a productive asset to be maintained and developed.  In the modern view of business, employees really are disposable.  And until that changes–which Obama’s plans say nothing about–the outlook will continue to be dismal for those of us who are not on the ‘rich investor’ side of the equation.

All right, what should the government do?

  • Tweak taxes higher for the wealthy:  The Federal government does necessary things that cost money, and someone has to pay for it.  The government also needs to be prepared for emergencies, like war or natural disaster.
  • Act to moderate the very worst effects of the downturn: This includes aid to states and localities, on a limited basis, contingent on the beneficiary exercising its own fiscal restraint.  (The New York legislature, in particular, is off on its own little planet where everything is still rosy, and they can spend to their heart’s content.)  A modest stimulus payment will also help.  One aspect of Obama’s plan that I agree with is tweaking taxes to make them more progressive (lower rates in the lower brackets, higher rates in the higher brackets).
  • Tweak tax policies to encourage business:  For my business, profits are poison: about half of them go up in taxes.  When I had a really good year, I was running around in December buying things for the business, because, as I told people at the time, ‘it’s either spend it or turn it over to the government.’ I can run my business to limit profits and pay less tax, but it keeps the business weak, as it can’t amass capital.
  • Otherwise, sit tight and sweat it out:   We got into this snit as a result of our collective delusions, and it will take time to recover.  If we try to maintain our delusions through deficit spending, it will take us that much longer to get over them.  We did it before, in the 1980s, when we had both inflation and unemployment: under Reagan, unemployment surged at first, but things came back into balance shortly after.

OK, I still haven’t done anything about the bean-counters who see labor as a cost to be reduced.  I don’t believe that any reasonable government can directly change people’s attitudes.

However, it will lead us away from being fat, dumb, and happy, and will hopefully make us better and more productive employees.  If the bean-counters see labor as a better value for their dollar, they might be re-awakened to the value of employees as assets.

Of course, all of this will be painful in the short term, which is why it will never happen.

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