The State of the Republican Mindset -- part 1
January 27th 2011 12:24
There are two observations about President Obama’s State of the Union speech, neither of which deal with the speech itself.
1 – Some people don’t understand economics
2 – These people will never be satisfied
Regarding economics, let’s try a couple of scenarios. Imagine an automobile dealership. The economy is lousy and nobody is buying any cars. You’re creating a new tax policy which, you hope, will increase spending, create more jobs and revive the economy. You can:
A – Reduce the employers contribution to Social Security by 50% so that it will cost less to hire a salesman.
B – Reduce the tax rate for people earning over $250,000/year so that they’ll buy a Rolls, Bentley, or Astin-Martin.
C – Reduce the tax rate for people making under $50,000/year so that they’ll be able to buy more Chevys, Hondas and Fords.
The correct answer is C. “A” represents trickle down economics, but the car realer won’t hire another salesman as long as the showroom has no customers. “B” may sell a car or two, and create a profit for the dealership, but there really aren’t that many people with that high an income, so the dealership can handle all the customers with its current staff. By getting money in the hands of a larger number of people, option “C”, the volume of new sales will make the dealership hire a new sales rep, possibly a new clerk, and hopefully even get the automobile manufacturers to open a new assembly line.
As for #2, there’s a line “you can’t spend yuour way out of a recession” but in fact, that’s the only way out. Simple supply and demand forces are okay for small things, but when the economy really goes sour, Keynesian methods, deficit spending, are the only viable method. Cutting back spending, as the far right wing is advocating, simply leads to more unemployment, which means less spending at the consumer level, and deepens the recession. The proper method should be to raise taxes on those who can comfortably afford to pay more, and borrow money as neccesary.
In spite of this, even as the President was speaking, and before either Paul Ryan of Michelle Bachman could give their replies, Senator Jim DeMint sent out a notice:
"Two years after the president's nearly trillion dollar government stimulus, unemployment has increased and remains high, families and businesses are still struggling and our national debt continues to skyrocket.
"When the president says 'investment,' he means bigger federal government and higher taxes. Americans sent a clear message in the 2010 elections. They no longer wish to 'invest' in President Obama's big-spending plans.
"Instead of growing the federal government, Washington should reduce its control and devolve education and transportation programs to the states that are better handled at the local level.
"The president spoke of a spending freeze, but we need spending cuts. Not a freeze at record high-spending levels. When you're in a car recklessly speeding toward a cliff, you don't hit cruise control. You slam on the brakes and reverse course.
"If President Obama is serious about fixing our nation's fiscal problems and his call for bipartisanship, he should start by joining Republicans in repealing the partisan ObamaCare law. This government takeover of health care is a threat to our economy and to our nation's health.”
The initial stimulus package was too small to deal with a fiscal crisis of this size, and to make things worse, about a third of it was wasted on tax cuts in order to get Republican support which never materialized (note that the stimulus was separate from the TARP program, meant to save the banks, which was a Bush program). Tax cuts are nice, but they add to the deficit and don’t do much to get us out of the recession, since the goal is to get money moving. Money that sits in a vault and doesn’t get spent doesn’t accomplish anything. How much money can you make if your customers come into your store, look around, and leave with the cash still in their pockets? The stimulus package kept things from getting worse, but it was too small to resolve the great recession.
More to follow.
1 – Some people don’t understand economics
2 – These people will never be satisfied
Regarding economics, let’s try a couple of scenarios. Imagine an automobile dealership. The economy is lousy and nobody is buying any cars. You’re creating a new tax policy which, you hope, will increase spending, create more jobs and revive the economy. You can:
A – Reduce the employers contribution to Social Security by 50% so that it will cost less to hire a salesman.
B – Reduce the tax rate for people earning over $250,000/year so that they’ll buy a Rolls, Bentley, or Astin-Martin.
C – Reduce the tax rate for people making under $50,000/year so that they’ll be able to buy more Chevys, Hondas and Fords.
The correct answer is C. “A” represents trickle down economics, but the car realer won’t hire another salesman as long as the showroom has no customers. “B” may sell a car or two, and create a profit for the dealership, but there really aren’t that many people with that high an income, so the dealership can handle all the customers with its current staff. By getting money in the hands of a larger number of people, option “C”, the volume of new sales will make the dealership hire a new sales rep, possibly a new clerk, and hopefully even get the automobile manufacturers to open a new assembly line.
As for #2, there’s a line “you can’t spend yuour way out of a recession” but in fact, that’s the only way out. Simple supply and demand forces are okay for small things, but when the economy really goes sour, Keynesian methods, deficit spending, are the only viable method. Cutting back spending, as the far right wing is advocating, simply leads to more unemployment, which means less spending at the consumer level, and deepens the recession. The proper method should be to raise taxes on those who can comfortably afford to pay more, and borrow money as neccesary.
In spite of this, even as the President was speaking, and before either Paul Ryan of Michelle Bachman could give their replies, Senator Jim DeMint sent out a notice:
"Two years after the president's nearly trillion dollar government stimulus, unemployment has increased and remains high, families and businesses are still struggling and our national debt continues to skyrocket.
"When the president says 'investment,' he means bigger federal government and higher taxes. Americans sent a clear message in the 2010 elections. They no longer wish to 'invest' in President Obama's big-spending plans.
"Instead of growing the federal government, Washington should reduce its control and devolve education and transportation programs to the states that are better handled at the local level.
"The president spoke of a spending freeze, but we need spending cuts. Not a freeze at record high-spending levels. When you're in a car recklessly speeding toward a cliff, you don't hit cruise control. You slam on the brakes and reverse course.
"If President Obama is serious about fixing our nation's fiscal problems and his call for bipartisanship, he should start by joining Republicans in repealing the partisan ObamaCare law. This government takeover of health care is a threat to our economy and to our nation's health.”
The initial stimulus package was too small to deal with a fiscal crisis of this size, and to make things worse, about a third of it was wasted on tax cuts in order to get Republican support which never materialized (note that the stimulus was separate from the TARP program, meant to save the banks, which was a Bush program). Tax cuts are nice, but they add to the deficit and don’t do much to get us out of the recession, since the goal is to get money moving. Money that sits in a vault and doesn’t get spent doesn’t accomplish anything. How much money can you make if your customers come into your store, look around, and leave with the cash still in their pockets? The stimulus package kept things from getting worse, but it was too small to resolve the great recession.
More to follow.
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