Thursday, March 26, 2009
Economy has us shuddering in fear -- again
Jackson taxpayers pay $10 per passenger per bus ride to fund the Jatran municipal bus system. That’s government efficiency hard at work.
For that amount, we would be better off just buying all the Jatran passengers their own used car.
Do the math: If a Jacksonian uses the bus to get back and forth from work, the cost to taxpayers is $20 a day, five days a week, 52 weeks per year. That’s $5,000 a year.
A private business would not be able to operate like that. It would go out of business. In contrast, the government can go on operating inefficiently forever. In fact, the city is about to buy another $12 million in buses, thanks to the Obama stimulus package.
Quick question: When the feds cut taxes, do government receipts go up or down? Most people would say “down” and they would be wrong. When government cuts taxes, the government actually collects more in tax money. The historical data on this is clear, irrefutable and easily available on the Internet.
You see, when the government cuts taxes, it spurs the economy. When the economy is doing well people make more money and pay more taxes, even though the rate they pay is lower. In addition, when tax rates are lower people spend less effort on tax avoidance. It’s a win-win situation just waiting to be enjoyed.
In our last bad recession, Reagan cut taxes dramatically. The recession faded and we had eight years of growth and prosperity.
Unfortunately, cutting taxes is bad politics for Demo-crats, especially when half the voters pay no federal income taxes. Taxing the rich and giving to the poor has been a popular theme since the days of Julius Caesar, who used the ploy to turn the Roman Republic into his personal empire.
We’ve learned a bit since then. Communication is better. People are more educated. They want results. Raising taxes may sound good, but when it stymies economic growth, the voters will turn sour and the Republicans will be back in office. Let’s hope they do a better job next time around.
Obama’s plan isn’t all bad. Giving the states Medicaid and teacher money will save cities and states from raising taxes. That’s sort of a backward tax cut. Infrastructure money isn’t all bad. At least we get some long-term assets like roads and bridges. It just takes too long to turn the economy around.
The quickest, simplest, easiest way to jump-start the economy is a tax cut. A payroll tax cut would have worked fine. After all, Obama did promise to cut taxes for everybody but the super-rich.
Of course, the super-rich deserve to be punished with extra-high taxes. After all, they are only the most productive people in our economy! Now that’s the way to spur economic growth.
We are in the bowels of a nasty recession. No denying that. Just don’t fall for the Chicken Little stuff.
The last recession of 2001 was caused by the bursting of the dot-com bubble. Nasdaq crashed to a fourth its peak value. Bad enough, but only a fraction of the population was heavy into tech stocks and we got a mild recession.
The 1990 recession was caused by bursting of the commercial real estate bubble. This also affected banks because a chunk of their collateral is commercial real estate. We got an average recession.
The 1980 recession was self-inflicted. To curb high inflation the Fed raised interest rates to 20 percent. High interest rates combined with high inflation affected everybody and we got a nasty recession.
The 1975 recession was caused by soaring gas prices and gas shortages. This created panic, but quickly subsided when the gas shortage was alleviated.
If you look at it logically, this recession has every reason to be a bad one. It was started by a sudden rise in inflation and gas prices, followed by the bursting of the residential real estate bubble. Everybody is affected by high gas prices and residential real estate, especially the banks for whom residential real estate is their primary collateral class. So we get a bad downturn.
Human beings haven’t changed a lick in 10,000 years. We are superstitious, panic-stricken, primitive lemmings. We are shuddering in fear as the thunder booms.
What has changed is our science, systems and technology. Our understanding of macro-economics is light years beyond what it was during the Great Depression. There is no doubt of recovery.
Historically, we spend one-third of our time in a downturn, defined as a period of increasing unemployment. We might as well learn how to cope with the situation.
Here are some 1980 headlines gleaned from newspaper archives:
Does any of that sound familiar? Now let’s suck it up, get a stiff upper lip and muddle through, as we always have.
Biggest irony of the recession: Everybody blames “collateralized debt obligations” for tanking our economy. The CDOs were the pieces of paper representing bundles of home mortgages and such that banks got stuck with.
Now the latest Fed program is called Term Asset-Backed Securities Loan Facility (TALF). The Fed will buy a trillion dollars worth of collateralized credit cards, auto loans and other consumer debt paper. Guess who’s going to issue these new CDOs for the Fed: the hedge fund industry!
The very thing the public has demonized as the cause of this recession, the Fed is trying to resuscitate to save the economy. The more things change, the more they stay the same. And the most ironic part of all, it will work.
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