Which road to recovery?

As the financial crisis has evolved into an economic crisis, where unemployment and diminished consumer spending have replaced toxic assets as the poison in the system, more calls for tax cuts are heard.  Stimulus spending is not reviving the economy, therefore another remedy must be needed, the thinking seems to be.  Conservatives have opposed the stimulus spending from the beginning, insisting that tax cuts would be more effective at reducing unemployment and stimulating private spending.  They argue that reducing taxes would allow investment into new businesses, which would create jobs.

This might be so, if the investments were made in the United States, and the jobs that were created were for Americans.  But recent history indicates that large corporations are more likely to use money freed up by tax cuts to invest in overseas production, to expand outsourcing, to maximize profits.  How is this going to help American workers?  Making products cheaper doesn’t help if consumers are unemployed, or underemployed.  Private investors are unlikely to put their money into improving energy efficiency, or alternate energy sources which will take years and years to pay off.

Conservatives object to the government simply handing out money that it has had to borrow, yet cutting taxes is basically the same thing.  Either way, the deficits will continue to increase.  But stimulus money has not been used to create new jobs in many cases, but to preserve existing ones.  States have been able to avoid laying off educators by paying them with stimulus funds, which keeps unemployment from going up more, but does not create new jobs.  Construction projects have had some positive effect, but many of those projects will only provide temporary employment.

How can we put Americans to work for the long-term, while at the same time putting more money into the hands of the private sector?  Doing one without the other is only going to prolong our agony.  Tax cuts will put more money into the hands of the private sector, but there is no assurance that it will be used to create jobs in America.  What industries are ready for large-scale investment, what sector could absorb millions of workers?

If we were to improve the ways that we use energy, so that we could accomplish the same result with fewer units of energy, we would be creating new wealth.  If we reduce the cost of heating and cooling a person’s home, we allow that person to spend a larger portion of their income on other things.  If we reduce the energy overhead costs for a retailer, that retailer can either lower their prices, or increase their profits, or a mixture of both.  And these benefits would be permanent, not just a temporary shot in the arm.

So, how about we cut taxes for those who invest in improving their energy efficiency, while using federal funds to put people to work improving energy efficiency?  In this way, we can target a specific area for improvement, instead of just handing out money in the hopes that some of it will create new jobs.  Energy efficiency is one of the greatest weaknesses of the United States, perhaps in part because consumption has made some people richer.  But choosing consumption over efficiency has made all of us poorer.

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One Response to “Which road to recovery?”

  1. Adrian Scott Says:

    Hi there.

    I agree with the principles of what you said, but my understanding of true conservative policy is different. Surely, conservatives want across-the-board tax cuts but that isn’t happening right now, and likely won’t at all.

    Months ago, when the first stimulus was being proposed, Republicans suggested that for 4 months, the public would be exempt from withholding taxes in order to increase their purchasing power. Since the gov’t would have spent $800b on the stimulus anyway, this would have been the same amount of money, but consumers would have decided what to do with their money.

    The reality is that companies are outsourcing to maximize profits because of the business climate and the difficulty of conducting business here. Cutting taxes alone doesn’t directly deal with that. Labor costs in the U.S. are huge thanks to unions and entitlement payouts.

    It is a tricky web. Cutting these regulations is possible, but in what order? Do it wrong and corporations will flee at an even faster rate. If they stay, we certainly don’t want them abusing their workers. But imo, this is where the debate should be framed.

    Like

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