Robert Reich's blog of June 9, 2011 is a quick and worthwhile read. He reminds me of Yoda warning young Luke Skywalker not to go ever to the "Dark Side" of Ronald Reagon style "supply-side" economics favoured by Republicans. 'Trust the Demand-Side of boosting consumer demand' might be a fair paraphrase of Robert Reich's advice for our President.
Reich's money quote is "How to get jobs back, then? "By reigniting demand. Put more money in consumers’ pockets and help them renegotiate their mortgage loans."
the White House is mulling a temporary cut in the payroll taxes businesses pay on wages. White House advisors figure this may appeal to Republican lawmakers who have been discussing the same idea. It would, in essence, match the 2 percent reduction in employee contributions to payroll taxes this year, enacted as part of the deal to extend the Bush tax cuts. Other ideas under consideration at the White House include a corporate tax cut, accompanied by the closing of some corporate tax loopholes.
Can we get real for a moment? Businesses don’t need more financial incentives. They’re already sitting on a vast cash hoard estimated to be upwards of $1.9 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.
Reich believes businesses are already spending as much as they can justify, and are sitting on $1.6 trillon in cash, they see no compelling reason to invest. So instead, of cutting business taxes, Reich sees the high leverage stategy as stimulating consumer demand, so businesses will have a reason to produce more. Without an increase consumer demand, tax cuts, would just be pocketed or maybe invested overseas in growth markets.
The reason consumers aren’t buying is consumers’ paychecks are dropping, adjusted for inflation. And job losses are mounting. ... For example: Enlarge the payroll tax break for workers — not just for employers. Exempt the first $20,000 of income from payroll taxes for a year. Create a WPA for the long-term unemployed. Allow distressed homeowners to declare bankruptcy on their primary residence, thereby giving them more clout with lenders to reorganize their mortgage loans. Lend federal money to (rather than bail out) states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty.
But we’re not hearing any of these sorts of demand-side solutions from the White House. In seeking Republican votes, Obama is putting forth Republican supply-side ideas ... that have nothing to do with this demand-side crisis.The President’s putative embrace of the false notion that businesses need more financial incentives in order to hire also risks giving legitimacy to other Republican supply-side nostrums being pushed by House Republicans and GOP presidential aspirants.
Reich has convinced me that supply-side economics has been tried for 30 years and has not worked. We need to focus more attention on boosting consumer demand. And, elsewhere he has used similar arguments to recommend we find as many ways possible to rebalance the distribution of wealth, and income to more traditinal ratios that produce higher rates of economic growth.
Please give this short article a quick read.