Friday, August 5, 2011

A Plan To Fix the Economy

The Dow Jones dropped 512 points yesterday; the worst single- day decline in the past two years.  All the major indices dropped 4%.  As expected the decline sent investors into a panic wondering if this was simply a market correction or the portent of bad days to come.
Today’s job growth numbers assuaged some of their fears.  The country produced 117,000 new jobs last month; much better than the anticipated 75,000 that the market had built into its pricing.  Unemployment dropped from 9.2% to 9.1%.  But the numbers are weak.  It takes 120,000 new jobs per month just to break even with the increase in population.  At 200,000 new jobs per month it would take us until 2017 to fully recover.
So how do we fix this?  It is really pretty simple.  But first you need to understand how we got here.  Bear with us for an overly simplistic tutorial.
As the economy slowed from the bubble days of the 90’s, corporations needed to get leaner and more efficient.  New technology helped them do just that.  As an example: online banking makes life easier for all of us; but it eliminates many of the duties performed by bank tellers.  Hence the number of tellers needed were reduced; and they found themselves unemployed.  In addition, globalization opened the doors for corporations to find cheaper ways of producing products overseas.  Corporations are responsible to their shareholders and so they were eager to seek even more cost effective ways of doing business.  More and more Americans found their jobs going overseas.  Corporations became more and profitable as they lowered their overhead and adjusted to the new ways of doing business.  Economists say that there is $2.4 trillion in cash sitting in the hands of corporations.  These corporations are unwilling to invest that cash to produce goods and services because there simply is no demand for products.  There is no demand because the vast majority of Americans don’t have any money to spend. And they don’t have any money because they don’t have a job. 
And so the circle continues.  No job means no money to spend.  No money to spend means no demand for product.  No demand for product means no willingness to invest and produce products.  And no willingness to invest and produce products means no need to hire.      
So what do we do to fix the problem?  Many look to Washington for answers.  Here is where political ideology gets in the way. 
Liberal Democrats believe that you fix the problem through an infusion of tax dollars into the economy.  They believe that through a vast array of government programs and stimulus money you bolster the economy and create jobs.
Conservative Republicans disagree.  They believe that the government needs to get out of the way and allow the private sector to create jobs.  They believe the way toward job growth lies in cutting government spending, eliminating regulation, reducing taxes and allowing the free market to run its course.
History shows us that they are both wrong.
The Democrats pumped trillions of dollars into the economy.  The bank bailout, the auto industry bailout and the recovery act were all designed to stimulate the economy.  While these programs did manage to keep us afloat and avoid a depression they were not sufficient to keep us from reaching our current economic state.  They failed because they did not address the primary causes of our debt and deficit: defense and entitlements.
The Republicans had already tried their hand with zero success.  They enacted the Bush Tax cuts and reduced government regulation.  They believed that by providing tax relief and eliminating regulatory impediments the corporations would flourish and create jobs.  These policies failed because the corporations invested overseas rather than here in the states. They made record profits but held on to them rather than invest them into the economy.  And like the Democrats, Republicans failed to address the primary cause of our debt and deficit: defense and entitlements.
So what is the answer?  How do we create jobs and get the economy moving again?  It is really not that difficult.  But it requires that our lawmakers set partisanship aside for the good of the country.
The first thing that you have to do is generate revenue.  You start by revising the tax code, eliminating the Bush tax cuts, eliminating the ridiculous subsidies, and closing the loopholes that provide business with an unfair means to hide their profits.  (Hold on conservatives.)   You develop a tax code that is fair to ALL Americans and sets rates that lie somewhere between those of the Reagan and Clinton eras.  You must also reduce the corporate tax rate to be more competitive with the overseas markets.  This will encourage US based companies to ply their trade on our shores.
Now it is the Democrats turn.  We have to cut spending.  You start with defense.  Nothing is more important than the safety of our men and women in the military.  You maintain the plan of getting out of Iraq by the end of this year and you set a time certain for Afghanistan for 2014.  We can no longer afford to fight two wars and we can no longer spend twice what the entire world spends on defense.  Next come entitlements.  You must raise the eligibility age for Social Security and Medicare to 70 and implement means testing.  You must also freeze the inflationary increases in benefits for the short term and weed out the duplication, waste and abuse.  The American people will not tolerate the elimination or privitization of entitlemants.  But there is no way to right the economy in the long term without reforming entitlements. 
Last, but most important we need to create jobs…but how do we do it?  We tried waiting for the private sector to create jobs.  It didn’t work.  So let’s try something different.
The government can currently borrow money at ridiculously low rates.  So we borrow $500 billion and direct it specifically toward rebuilding our crumbling infrastructure, developing light rail and implementing broadband technology.  Not a Nancy Pelosi/Harry Reid stimulus project loaded with pork and crap, but a real jobs program.  While conservatives may blanch at the thought of borrowing more money they will appreciate the huge return on investment as business grows.  Properly directed, a specific jobs program would rebuild our nation, enhance efficiency and productivity, grow the economy and, most important of all create millions of jobs.
Tax reform, entitlement reform and job creation.  We can tackle our long term debt and deficit problems while providing an immediate boost to the economy and the job market.  This is a bi-partisan solution for the good of the country.  It will generate confidence in the markets, renew our stature in the global economy, embolden business and help the American people.
We have seen the results of bi-partisan gridlock.  We have seen the results of programs strictly designed to stimulate the economy and those geard toward drastic spending cuts. Neither works on its own.   What we need is a bold bi-partisan program that satisfies both ideologies and puts the country first.
Can this plan work?  Of course it can.  Ezra Klein, Washington Post contributor, economic genius and avowed liberal came up with much the same idea.  Respected conservative columnist Charles Krauthammer details a similar plan in his recent op-ed.  If Klein and Krauthammer can agree then a bi-partisan deal can certainly be reached.
But the clock is ticking.  We have already wasted months on a do nothing debt ceiling solution.  We cannot put off the tough decisions any longer.  Wall Street confirmed that yesterday.  
The resolution lies on the shoulders of the President.  It is his watch.  There is still time.  But the time for being the compromiser-in-chief is over.  He needs to take his case to the people and boldly challenge those who would go to any measure to see him defeated; even the destruction of the American economy.  He cannot blink…because the future of our economy rides in the balance.
And should he shoose once again to believe that giving in is the right thing to do...he’ll be joining the other 9.1% who are unemployed. 




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