The Peanut Gallery is buried under 8 inches of snow and ice this morning so it is a perfect time to do some posting. The Courier-Journal reported earlier this week that the Kentucky unemployment rate is at a 20 year high. Indeed, there the rate stands at 7.8%. One can debate the possibility of ever achieving full employment, but these numbers speak loudly and clearly that we have a job problem in Kentucky. Without explaining the deeper merits of economics (mostly because I am a novice at economics) more people unemployed means less money that we as a general public have to spend on products. Smaller spending on products means that many companies will cut jobs to meet the lower demand and lower profit margins. Then we have more jobless Americans starting the cycle over again. No amount of tax cuts will increase spending if the person who gets the cut has no job. A tax cut in income tax will not increase jobs and even a tax cut on small business will not improve demand, which is what drives production. Simply put: tax cuts put money in pockets in the short run but do not, in the long or short run, create jobs.
Enter the GOP. They are claiming that demand side economics does not work. Although there is a preponderance of evidence that it does (see the New Deal). They want less spending in the stimulus on infrastructure. They want less government spending, period. They do want tax cuts for Americans of most all tax brackets. I understand the principle. The Republican Party has long ties to Federalists, which want to limit the scope and spending of the Federal Government. I am sympathetic to this way of thinking. The problem is, Republicans on the state level want to do the same to the state budget. The slash and burn principle the Republicans of our era seem to love won’t provide essential services. I am completely fine with states individually providing the services in competition with one another. We can reduce the Federal government if states will do so. The problem is Republicans in Kentucky want to cut our budget as well, thereby reducing government on both the state and national level. This is not currently possible nor is it logical.
What is really puzzling is that Mitch McConnell can stand in front of a camera and advocate for a stimulus package he knows won’t work. It won’t employ more Kentuckians. The evidence is ample. Still, he wants to mainly cut taxes and reduce spending. That kind of rhetoric earns you point with some Americans, but it is a dereliction of duty as a Senator for people who are out of work. What Mitch ought to do is cut the rhetoric and pass this stimulus package. Give it a chance to work so that all Kentuckians might be able to work. Anything less is failure and obstruction for ideals that aren’t practical at this moment in history.
Tomorrow I will be blogging about Right to Work laws and Labor unions.
Wednesday, January 28, 2009
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3 comments:
Thanks, Josh.
As a recently unemployed KY resident I could not agree more. Not only is Kentucky going to continue to see an increase in the unemployment rate, but with people like Mitch McConnell advocating for us we'll probably get to the top of the list before you know it.
Well Josh, as the token conservative, I have to take issue with you on a number of your points. I'm sure you'll disagree with much, or all, of what I'm going to say, but you know I can't resist, so here I go.
First, our national unemployment rate is likely higher than the 7.6-7.8 % that has been so widely reported these days. Remember, it is based on those not employed who are still seeking employment. There are likely a number of folks who aren't actively looking anymore and thus are no longer counted toward our unemployment rate.
For the sake of argument, lets assume that the real unemployment rate is 10 %. This means that 90% of the American work force is still gainfully employed. So, it's illogical to say that reducing their tax burden won't put more money back into the economy. It would at least give people the opportunity to determine where their money went. This is especially the case if you make the kind of tax cuts that I believe need to be made. By this, I mean the kind of cuts that are made with a bazooka, not a scalpel.
Second, when you mention that the New Deal created jobs, you are absolutely right. And, by dedicating funds in the stimulus package to infrastructure, you would most certainly create additional jobs.
The problem is that the jobs created in the public sector contribute to an ever-expanding government which requires private funds to exist. So, while this would help to put a percentage of those who are currently unemployed back to work, it costs the rest of us in the long run by having to pay all those federal employees wages and benefits.
Think about it, if you were handed $600 now, you wouldn't spend it, you'd put it in savings. Look what happened with the Bush stimulus package. But, if you were given back $600 per month that was previously taken in income tax, you'd be a whole lot more likely to put some of that money back into the economy.
Also, consider that businesses never really pay taxes. They pass them along to their customers. Also, to be clear, when I say customers, I don't mean end-users. People conveniently forget all of the transactions that take place between manufacturing a product and the end-user. There are generally many channels of distribution before a product ever reaches us. So, this effect is cumulative.
One last point, then I promise I'll shut up. I find it extraordinarily ironic that you can criticize Mitch McConnell for advocating a stimulus package that he knows won't work, when in fact, nobody knows what will work. We are in uncharted economic territory. Anyone who says otherwise is lying or ill-informed. I think that McConnell echos a concern that many of us have. There are a number of people who've adopted an attitude that something must be done even if its the wrong thing to do. That is downright frightening. I recently heard an economist say that after the first bailout package every American taxpayer would have an imaginary mortgage of $432,000.
So, how do we plan to pay for all of this new debt? What will we do if the stimulus doesn't work? Extraordinary times call for extraordinary caution.
Whewwww, I'll climb off my soapbox now. Now you can outline all of the ways you disagree.
Oh jeez, I almost forgot one last thing. Take it from someone who has worked for a number of businesses at various points in their life-cycle and is currently worked towards an MBA, recession is good for business. It is painful at the time, but recession forces businesses to adapt and innovate. Considering the degree to which so many of our largest industries are behind, I'm amazed that we have been able to compete in a globalized economy. We have operated key industries(Automotive, Manufacturing, etc.) with 50 year old business models. Government is incapable of generating the innovation that will create jobs in the private sector. That is something business must do for themselves. Some must fail in order for this to happen.
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