Shifting taxes and subsidies would make the economy serve us
Practical Reasons Why Stimulus Spending Doesn't Work
| Both Right and Left critique each other accurately. In this 2009 op-ed from the Hawaii Reporter of Jan 12, the writer critiques big spending for a stimulus or bailout. But his proposal is misguided. What’s really needed is to lose the mentality that we need to serve the economy instead of vice versa. That makes the vision of geonomics -- replacing taxes and subsidies with the recovery and sharing of Earth’s worth -- compelling. The writer is a policy analyst at Reason Foundation. |
by Anthony Randazzo
Contrary to popular belief, the government spending programs implemented during the Hoover, Roosevelt, Ford, and George W. Bush administrations did not create sustained economic growth or reduce unemployment long-term. Neither did Japan's years of stimulus spending in the 1990s bring Japan's economy out of recession. Stimulus packages are never fully successful.Barack Obama and Congress are beginning to debate a two-year, $775 billion proposal that includes up to 40 percent in tax cuts. However, there are very practical reasons why this don't work the way they are projected.
- 1. Stimulus packages don't increase aggregate consumption
In order to inject money into the economy, the government has to take money out of the economy. Whether by increasing taxes, national debt, or printing the money (growing inflation), the government has to damage long-term wealth in order to provide short-term economic activity.
2. Stimulus packages frequently misdirect national resources
The federal government, with its limited knowledge and lack of price signals, can't easily know (or sometimes care) how best to spend money -- even on the well-meaning projects like a wider freeway. Stimulus spending draws economic activity to projects that politicians and bureaucrats deem worthy and away from projects that professional investors deem worthy, such as perhaps research in new medical equipment.
3. Stimulus packages are pork-laden and caught up in federal bureaucracy Does the road to nowhere ring a bell? The US Conference of Mayors submitted their wish list of over 11,000 projects that are "ready to go". Private firms and industries nationwide will line up to try and get their piece of the federal money. The rent seeking behavior will deter politicians, under pressure from donors and constituents, from putting the money to the most effective use.
4. Stimulus packages don't create sustainable jobs
Infrastructure projects create jobs because they require workers. But once the project is complete, the jobs go away. The contracting firm that used stimulus money to hire workers no longer can afford to keep them on staff. Employment is not sustained.
As a result the worker, while employed for a short-term period of time, is not able to seek long-term employment. The worker, while likely grateful for the short-term job, is still not sure if, or when, the next job will come. As a result, they will still likely limit their spending and overall consumption and growth.
5. Stimulus packages increase national debt or cause rapid inflation
The national debt more than doubled under New Deal spending during the Great Depression. Now the national debt is already approaching $11 trillion and the federal budget deficit for 2009 may top $1.2 trillion. In order to pay for any stimulus, the government has to pass the cost on to future generations.
While there may be some short-term economic activity, the weight of the national debt will limit economic growth in the future. Alternatively, if the government printed money to avoid debt, inflation would grow, also hindering sustained economic growth. The nation needs fiscal responsibility from its government more than it needs a stimulus.
To try to stimulate economic growth, I prefer ax cuts. Allowing companies to keep more of their revenue is an incentive to create more wealth and thus promote economic growth. Allowing individuals to spend more of their own money as they see fit helps the market more accurately understand demand signals then when the government just spends trying create demand out of nothing.
Stephanie Cutter, a spokeswoman for President-elect Obama, said that the incoming administration was trying to create private-sector jobs through a package that has a big and immediate impact. "We're guided by what works," she said, "not by any ideology or special interests." If that's the case, they should look beyond stimulus spending and cutting taxes.
JJS: And look to geonomics. The key is not so much cutting taxes as shifting them. Wherever tried, to the degree tried, it has worked. In the 1970s recession in Australia, the towns that levied the usual property tax, on both buildings and land, of course lost business. The towns that levied only land and spared buildings did not lose less business, did not break even, but actually gained new business. This tax on land spurs owners to develop while the zero tax on improvements rewards owners for developing. Even in a recession, while others suffer, geonomics works. Let’s use it.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Tax Cuts and Budget Deficits
(On Democrats, Tax, and Common Sense)
We don’t need a stimulus but a paradigm shift |
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