Tuesday, December 31, 2002

Lean Left has a good break-down of the coming break-down in the economy and what needs to be done to avoid it.
Now, since confidence is dropping, and consumer spending has been propping up the economy for a year or so now, does this mean that the economy is likely to get worse in the coming year? Yes, unless someone starts spending some money. Consumers are slowing their spending, pinched by high debt and a shaky job picture. Businesses still have not worked off their excess capacity from the bubble, and have no incentive to produce more capacity, since no one is really buying anything - especially on the business side. That leaves the government as the only force left to inject money into the system - either by tax cuts target at people who spend the highest percentage of their income (poor and middle class) or direct spending. And it almost certainly has to be the Federal government, since the states are buried in their own financial crisis's, and are almost universally raising taxes and cutting services to balance their budgets (as is mandated by law in most states). Tax cuts for business aren't going to help very much - why would I build a fourth factory if I do not have enough orders to keep the three I already have running? Tax cuts years from now are not going to help much, as the problem is today's economy. In fact, they may hurt, as the long term interest rates are driven up by the specter of Reagan like deficits. Tax cuts mainly for people who make over $400,000 a year wont help much, because they spend proportionally less of their income than poor and middle class people. There really is a limit to how much stuff one person can buy. Even if they all invest the money, it wont do any good now, because, as noted, business have no reason to increase or expand production. Ditto for tax cuts on dividend income. No, we need measures tailored to injecting real spending into the economy, and that means measures tailored at poor and middle income earners, with some direct spending and help for small businesses mixed in. I don't see where the stimulus is going to come from otherwise.
I don't hold out much hope that the yahoos in the White House will ever come close to do any of the things that are necessary to avoid a worsening economic picture. They would essentially have to overcome years of ideological momentum to even consider some of the things proposed above.


Post a Comment

<< Home