The Simplistic economic solution

Kavips, for whom I used to have great respect, has a post about the simple way to fix our economy. Let's take a look:

The economy problem is simple. You need people working, people making money, and people spending money…

He forgot saving and investing. Those are two critical needs for any healthy economy. If anything our savings rate has been way too low over the last 30 years. Savings is solvency. We've punished savings and, to a lesser extent, investing so people have been spending like crazy. In fact, that's one way we got into this mess. We overspent on credit cards, mortgages and the like. That's a minor point compared to what Kavips concedes by omission. The key word is "people" and not government. Government doesn't fuel economies. It can only take money our or otherwise distort with regulations, laws, taxes and subsidies. He knows and finally admits it. I never thought I'd live to see the day.

All three have to be in effect at the same time for it to work…

Again, I'll add save and invest also but let's move on

If you disrupt the balance, such as we did during the Republican economy where due to uncontrollable derivatives we had businesses betting tremendous amounts money, instead of putting it into manufacturing, you are setting yourself up for a correction..

Strawman. Derivatives are not "uncontrollable". They are controlled by contract. They are very specific about what who gets paid what and what the conditions are for payment and so on. The instruments themselves are highly complex and the market conditions that drive them are (largely) uncontrollable that is true of virtually any market. Oil, Cattle futures, bonds, munis, index funds etc.

Manufacturing left America in numbers decades ago. Why? The cost of labor was/is simply too high. Why are there no textile mills in South Carolina? Why is Bethlehem PA a ghost town? Why is Detroit vacant and rotting? Simply put; business has to minimize costs and labor is a big part of that cost. Big Labor stopped any attempt at increasing efficiency, cutting jobs, salaries or retirement benefits. Some companies (like the Big Three) went along with it and rolled the problem forward rather than deal with it. The result is that now we have many more foreign cars on the roads. It's basic economics. Lower taxes and lower wages in China ensured that manufacturing was doomed here. It's not coming back and wishing won't make it so.

When one balances the economic activity of any president, and rates his tenure as either good or bad, it is only fair that the correction, if any, that follows his tenure, be counted into that equation.. It does no good to say the first years of the Bush economic plan were real good, thereby proving the value of conservative Republican doctrine..

So we agree that we can blame Carter for the state of the economy when Reagan took office. Good. The "Bush economy" started off OK but was torpedoed by bad decisions and external factors. Bush thought he would pull a Clinton and co-opt some of the Democrat's strategies and make them his own. Especially those he thought were be both popular and would be over-ridden if vetoed. The Perscription Drug plan is a prime example. He thought he'd do some good and even if well intentioned was a bad idea. Big Government conservatism is an oxymoron and it earns no points with either the base or the Democrats.

Because you see, Republican doctrine is what caused our financial mess today..

We've been around and around on this one. No. It. Isn't. Fannie Mae and Freddie Mac were making loans they had no business making and were way overleveraged.

The idea, that you could export jobs,

How exactly, are jobs exported? Do they put them in boxes and send them somewhere? How do you propose to prevent companies from shifting divisions to other places? How would you prevent them from pulling up stakes altogether?

bankrupt the Treasury,

This from someone who supported the stimulus package....

and overextend 30% of America’s mortgages,

I'm not even sure what this means. Does it mean that Republicans somehow made people borrow beyond their means? Or they lent people too much money? Honestly, I don't understand what this means.

and have all those negative effects compensated by making the top 1% so much more wealthy, is simply put.. “The Republican Economic Philosophy”

Again with the class warfare. Why do liberals think the economy is zero sum?

.. Any fool can see such a philosophy could not work… but we elected people more stupid than fools. We elected Republicans…

any fool can see that strawmen and non-sequitors don't make something true.

We therefore made our bed; we have to lie in it..

and you're opponents have been saying the same thing since Obama took office.

But simply put,

You need people working, people making money, and people spending money…

Which means everyone needs to forget about corporate profits this year… There comes a time when mankind, who has been holding on mistruths for so long, comes to it’s senses, and accepts the obvious. Excessive corporate profits do little for the economy.

What does that mean? What is "excessive"? Who is the arbiter of "excessive"? I keep hearing this but it's never defined. I want a number, a hard number on exactly when excessive begins. Second, where do you think that profit goes? To the Snidley Whiplashs in the boardroom? Most of it goes to pension funds, mutual funds, individual investors and the like. Yes the corporate board will likely see lots of money but they are not the problem. Even if you give them zillions what do you think they're going to do with it? Realistically, they can only spend it (which you are advocating), invest/save it (which I am advocating) or, I suppose set it on fire (which I'm sure would be find with you so long as they don't get to keep it). Where is the problem?

By forgetting about corporate profits, I’m not saying don’t have them.. I mean only that a shift in focus needs to occur. Instead of sending money away to the stockholders, investing in one’s business needs to happen now… Whether it is through weather proofing, energy efficiency, building windmills, or even just providing another open checkout line, once any business has cross the line into the black, it needs to stay as close to that line as possible…

Investing (that is also called spending) in your business only makes sense if you're going to get a return on your investment. Many windmills are not profitable which means you're not going to build one. Opening another checkout lane only makes sense if you have customers waiting. Energy efficiency (typically) has a low ROI and the break even point is many years out. Virtually every business in the nation keeps as close to that line as possible. They have to. If they don't a competitor will narrow their margin and take their market share. That is econ 101. How can you not understand that? If you expand your business and trim your margin too much the stakeholders will vote you out and put somebody in charge who will find ways to make them more profitable. That's the function of a corporation. To enrich the stakeholders. Don't like it, open a cooperative or employee owned corporation. Failing that, do business with those who share your views whenever possible. (I realize this is not often possible)

I take it the larger point is about being a good corporate citizen. One which I share. However, how that is done is the rub. Should a company bloat it's roles as it is good for the local economy? I say no. That sort of artificial resource allocation leads to major problems. Trust me, I've been on the business end of that more than once. Rather, they should co-ordinate volunteer efforts for job training, ecological safety and improvment, charity drives etc.

It does not pay to cough up an 5 extra percent, if it means laying off one worker. That one worker, is a priceless treasure right now, precious fuel for a sputtering economic engine…

What does "cough up" mean? Remember also that many people on the lower economic strata are hurt by minimum wage laws. Said laws hurt employment by the very people they're meant to protect. That's a long post for another time though.

If the lack of investment is because of banks.. something needs to happen. If the lack of investment is because of taxes,.. something needs to happen. If the lack of investment is because of too little government money trickling through our economy, something needs to happen.

The lack of investment is not because of banks, it is because of government. Capital investors hate uncertainty which is running rampant now with the grand sweeping changes the President is trying to make. Taxes are indeed a big driver. Both personal and corporate. We have the highest corporate taxes in the OECD. That makes investment here by any capital (foreign or domestic) less appealing. Slash the corporate rate to a flat number of 20% with zero exemptions and watch it grow. Slash personal income to a flat 15% and watch the economy roar to life.

Democrats are about making this happen. Republicans are about stopping it from happen..

Democrats and Republicans are primarily concerned with: 1. getting re-elected 2. rewarding their donors 3. enriching themselves 4. Hammering their opponents 5. if all those are done then perhaps we can do something simply because it's a good idea.

So really, who are the “patriots” here, and who are the “traitors”?

Patriots are people who refrain from demonizing their opponents and realize that we're all in this together and whatever our differences we're all Americans and we need to stop shouting at each other and start talking.


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