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February 13, 2009 – Comments (2)

"Make Work Pay" tax credit.

Returning a tax credit out slowly makes more sense to me than "trickle down" or a lump sum. This stimulus bill is spread out over two years, and $10/ week is longer lasting and will feel more permanent than a "lump sum". The example Deej gave yesterday of $10 not making a difference to a person making $80k who lost $40k out of a retirment  401k is accurate. But think of the person making minmum wage. He has to work one and a half weeks to get that $400. To him $10/week means he can put $5.00 in the tank on Thursday instead of the $2.00 he had been, or fills the tank on Friday instead of only spending ten dollars.

The gas station with some mix of fifty of these customers suddenly has $200. in his hand that he did not have last week. He gets caught up with the potato chip vendor who had been extending him one weeks interest free credit. The potato chip vendor gets $200 from 7 C-stores and saves $400 into his bank account and uses $1000 to pay down his credit card.

And that interest savings will last for two years, and the bank gets a one time partial recapitalizion as the vendors debt is paid down.

In spite of my arguments in the past that trickle down does not work, in theory it could. I now see that trickle down is working but to whose benefit? By giving corporate tax breaks, the largest and most global business's were able to invest that windfall as they saw fit. The smartest thing was to put production where costs were cheapest. The way President Reagan described it, it sounded like he meant Alabama. Once trade policy was weakened it became China and the Phillipines.

The combination of trickle down with reckless trade policys that encouraged "flushing out" of the USA as opposed to "trickle out" started the problem we are facing today. Attempts to replace those losses with borrowed money increased the debt burden we all support, and our inability to support has just collapsed.

Trade policy that failed to insist our trading partners met our environmental standards and living standards has resulted in our living standards falling toward our trading partners levels.

Recent global trade policys have given an extraordinary advantage to global companys such as GE against small business's. The size of the advantage is clear when you decide it is more affordable to buy a new dishwasher rather than install a new water pump (one small piece of a dishwasher) into the old dishwasher. While it has been nice to get cheap products it has not proven sustainable because our money is no longer here and the cheapest labor is still there.

Negotiating American labors living standards downward as a solution is good for who? In hindsight it would seem preferable to have negotiated our trading partners living standards upward.

The people who promoted these policys may have been willfully ignorant, dumb innocents, or criminally complicit. I am sure it is a combination of all three. But those who experienced extreme profits from this outward flood of money by skimming a percentage of every monetary exchange are most likely complicit. On both sides of the Oceans.

Noone who wants to restore the recent lending levels should be relied upon. Noone who wants to maintain currrent trade policy should be relied upon.

While trade should not be shut off, the policys that have created extreme profits for a few at the expense of impoverishing so many should be ended.

Trade needs to happen. "Fair" trade needs to be redefined. There  needs to be a balance between the extreme protectionism conservatives fear and the recklessness we have had.

The credit system should be allowed to collapse to a manageable level. The banks should never have been recapitalized directly. They should have taken their losses. TARP was a bad idea and should be ended immediately. Bernanke shoud slowly start reeling in the easy money and if neccessary Gov't should finance essential industrys directly. 

In an effort to save the lost future value of the forests and resources that were used creating this building excess, the States should police the empty neighborhoods until such time as population or income growth supplies buyers for the properties. The properties owners should fund the policing through property taxes because no unelected entity should have a private police force this size. If they choose not to fund the policing of their properties they should be required to relinquish the rights to these properties to the Federal Gov't in exchange for the tax write off, who should then be responsible for funding the policing.

Many of these houses were built in locals with water supplies that are vulnerable to Global Warming.  Climate Change (or lack thereof) will have to be monitored to determine if it is worth the expense of creating a water supply to support living in the desert. Best would be if it rains more, but that is an overly optomistic hope at this time.

Economic theory is fun but there is a real world with limited resources out there.

2 Comments – Post Your Own

#1) On February 13, 2009 at 2:05 PM, Gemini846 (46.84) wrote:

This was a good post. What if we got that 15B back from the homebuilders and just demolish the unused mcmansions (since apropriating them as homeless shelters seems unworkable).

Then we could re-plant the trees.

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#2) On February 18, 2009 at 2:38 PM, BigFatBEAR (29.17) wrote:

I actually work at minimum wage! And yes, 10$ a week over two years spread out over everyone making low income would make a difference.

Now, not many other minimum wage people that I know are savers and investors, so perhaps they wouldn't allocate this resource the way that economy theory dictates would be best, but it would still help a lot of people, and would throw a life vest to the demand side of the economy.

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