Friday, July 16, 2010
THE ECONOMIC SOLUTION: SPEND OR SAVE?
The question of spending versus saving, so frequently discussed in American households across the country in the past two years, now plagues the nation in general. It is now a quandary that politicians all across the land are facing as they debate public policy in the halls of government and in the public forum of the upcoming elections.
The best advice for reconciling the question of spending versus saving may or may not be the same for the government as it is for the individual family.
One will recall that early in the Bush administration, when faced with a mild recession, families were urged to spend. Their solution was to encourage people to go out to the malls and shop. No doubt this would have been helpful for the national economy, but most doubted that this was good advice for many families already deeply in debt.
Every personal finance advisory column we have seen for some time has advocated that consumers reduce debt and save more. Plans are offered on how best to do that. Paying off personal debt, developing a three to six month cash reserve fund, and then keeping all payments current are stressed.
However, economists have NOT been recommending an analogous plan for the nation. For two years almost every reputable economist has stressed government spending to stimulate or jolt the economy back into gear. The president and his administration bought this idea, and they have pushed their stimulus plans vigorously. Progress has indeed been made.
Most economists still recommend strong stimulus plans with temporary deficit spending, warning that a “double dip” recession may hit if this is not done. However, a tidal wave of political criticism of deficit spending is spreading across the nation. Much of this is being pushed by the emotional, logically nonsensical people identifying themselves as the tea party.
These tea party types are joined, of course, by the Republican Party itself. Supporters include the usual wealthy individuals who back any and all anti-tax efforts. Anti-tax, anti-deficit hawks now include those in the upper income brackets who benefited from the republican tax cuts, and those republicans in Congress who previously put the first $1.3 trillion cost of the Iraq War “off-budget,” directly onto the national debt.
Reading the political tea leaves, pun intended, some economists are now coming out for a strong temporary spending plan to stimulate job development combined with a long term plan for deficit and debt reduction. This should prove politically and economically practical, but unlikely.
All this brings up the broad expansive question about what kind of plan would actually put this nation back on its fiscal feet? What would a long-range plan for living within our means really look like? If we had to political will to actually do it, just what would it take? Is it all that complicated?
Long range financial good health of the United States of America would require the following general steps:
• Secure the future of Social Security and Medicare with “tweaks.”
• Cut the military budget:
Bring home the troops scattered around Europe and Asia.
Bring the troops home from Iraq and Afghanistan.
Cut development/acquisition costs of unneeded weapons systems.
• Reinstate taxes on upper 5% in income and 1% in estate wealth to near Reagan levels.
• Enact a modest consumption tax, including tariffs on oil and imports.
• Cut out corporate welfare and subsidies. Stop off-shore tax cheats.
Securing the future of Social Security and Medicare is not difficult, except for the political will to actually do it. A slight change in retirement age for non-physically stressing jobs, slight increase in the base incomes upon which payroll Social Security and Medicare taxes are levied, and then a sensible adjustment in benefit growth decades in the future. This is called “tweaking.” It is not rocket science.
Budget balancing is done by both increasing income and reducing spending.
The military is the only huge discretionary sector of the budget. Stop playing world policeman, and bring home the roughly 100,000 troops from some 38 countries where they are stationed around the world. These countries should meet their own defense costs, not continue to rely on American tax payers. This saves billions in the defense budget.
Some argue, of course, that we have no business in Iraq now, and perhaps never had any business there. They argue also that it is not our job to maintain the shaky, corrupt government in Afghanistan against insurgency, and that those people should stand on their own. They argue Al Quaeda is a CIA problem, not soluble by huge military efforts. Stopping these wars in the Middle East would net hundreds of billions per year in savings.
Then comes the matter of taxes. Those who spend the highest percentage of their income stimulate the economy the most. This happens to be the lower 95% of the citizens. Who benefits the economy the least? Obviously, it is those who spend the lowest portion – the upper 5%.
Contrary to old economic thought, the rich are not reinvesting their capital into production, and thus jobs. Similarly corporations, still making billions in profits, are not expanding activities or adding jobs – in America. Most are not paying decent dividend rates or taxes. They pay their executives exorbitant salaries, they bid to buy one another, and they hold their cash. None of these things stimulate the economy much.
A return to tax rates of the Reagan years is overdue. Given that and this country should be on the road to paying off its accumulated debt.
Perhaps an initial move would be to eliminate all the special tax breaks and subsidies to our businesses, mining, and industrial activity. Oil companies alone enjoy $45 billion in subsidies from the national government while racking up record profits. These and other welfare programs for big business need to be cut out.
This may be a highly simplified of the remedies needed in this country. We may not have the political will to enact them. Surely we won’t solve the problems as long as we have nitwit politicians running around spreading harmful nonsense and playing on people’s emotions.
Dr. Edwin E. Vineyard, AKA The Militant Moderate
The best advice for reconciling the question of spending versus saving may or may not be the same for the government as it is for the individual family.
One will recall that early in the Bush administration, when faced with a mild recession, families were urged to spend. Their solution was to encourage people to go out to the malls and shop. No doubt this would have been helpful for the national economy, but most doubted that this was good advice for many families already deeply in debt.
Every personal finance advisory column we have seen for some time has advocated that consumers reduce debt and save more. Plans are offered on how best to do that. Paying off personal debt, developing a three to six month cash reserve fund, and then keeping all payments current are stressed.
However, economists have NOT been recommending an analogous plan for the nation. For two years almost every reputable economist has stressed government spending to stimulate or jolt the economy back into gear. The president and his administration bought this idea, and they have pushed their stimulus plans vigorously. Progress has indeed been made.
Most economists still recommend strong stimulus plans with temporary deficit spending, warning that a “double dip” recession may hit if this is not done. However, a tidal wave of political criticism of deficit spending is spreading across the nation. Much of this is being pushed by the emotional, logically nonsensical people identifying themselves as the tea party.
These tea party types are joined, of course, by the Republican Party itself. Supporters include the usual wealthy individuals who back any and all anti-tax efforts. Anti-tax, anti-deficit hawks now include those in the upper income brackets who benefited from the republican tax cuts, and those republicans in Congress who previously put the first $1.3 trillion cost of the Iraq War “off-budget,” directly onto the national debt.
Reading the political tea leaves, pun intended, some economists are now coming out for a strong temporary spending plan to stimulate job development combined with a long term plan for deficit and debt reduction. This should prove politically and economically practical, but unlikely.
All this brings up the broad expansive question about what kind of plan would actually put this nation back on its fiscal feet? What would a long-range plan for living within our means really look like? If we had to political will to actually do it, just what would it take? Is it all that complicated?
Long range financial good health of the United States of America would require the following general steps:
• Secure the future of Social Security and Medicare with “tweaks.”
• Cut the military budget:
Bring home the troops scattered around Europe and Asia.
Bring the troops home from Iraq and Afghanistan.
Cut development/acquisition costs of unneeded weapons systems.
• Reinstate taxes on upper 5% in income and 1% in estate wealth to near Reagan levels.
• Enact a modest consumption tax, including tariffs on oil and imports.
• Cut out corporate welfare and subsidies. Stop off-shore tax cheats.
Securing the future of Social Security and Medicare is not difficult, except for the political will to actually do it. A slight change in retirement age for non-physically stressing jobs, slight increase in the base incomes upon which payroll Social Security and Medicare taxes are levied, and then a sensible adjustment in benefit growth decades in the future. This is called “tweaking.” It is not rocket science.
Budget balancing is done by both increasing income and reducing spending.
The military is the only huge discretionary sector of the budget. Stop playing world policeman, and bring home the roughly 100,000 troops from some 38 countries where they are stationed around the world. These countries should meet their own defense costs, not continue to rely on American tax payers. This saves billions in the defense budget.
Some argue, of course, that we have no business in Iraq now, and perhaps never had any business there. They argue also that it is not our job to maintain the shaky, corrupt government in Afghanistan against insurgency, and that those people should stand on their own. They argue Al Quaeda is a CIA problem, not soluble by huge military efforts. Stopping these wars in the Middle East would net hundreds of billions per year in savings.
Then comes the matter of taxes. Those who spend the highest percentage of their income stimulate the economy the most. This happens to be the lower 95% of the citizens. Who benefits the economy the least? Obviously, it is those who spend the lowest portion – the upper 5%.
Contrary to old economic thought, the rich are not reinvesting their capital into production, and thus jobs. Similarly corporations, still making billions in profits, are not expanding activities or adding jobs – in America. Most are not paying decent dividend rates or taxes. They pay their executives exorbitant salaries, they bid to buy one another, and they hold their cash. None of these things stimulate the economy much.
A return to tax rates of the Reagan years is overdue. Given that and this country should be on the road to paying off its accumulated debt.
Perhaps an initial move would be to eliminate all the special tax breaks and subsidies to our businesses, mining, and industrial activity. Oil companies alone enjoy $45 billion in subsidies from the national government while racking up record profits. These and other welfare programs for big business need to be cut out.
This may be a highly simplified of the remedies needed in this country. We may not have the political will to enact them. Surely we won’t solve the problems as long as we have nitwit politicians running around spreading harmful nonsense and playing on people’s emotions.
Dr. Edwin E. Vineyard, AKA The Militant Moderate
