Keeping with my week of jobs and the economic thing……
The Prez made his speech to the joint session of Congress and the American people, after caving in to the political BS, and we now have his plan for jobs……..“intention to lay out a series of bipartisan proposals that the Congress can take immediately to continue to rebuild the American economy by strengthening small businesses, helping Americans get back to work and putting more money in the paychecks of the middle class and working Americans, while still reducing our deficit and getting our fiscal house in order.”
First of all…..YAWN! This has about as much chance as I have being elected “Miss Teen America”…..
Now for the GOP plan for jobs creation……..a noun, a verb and tax cuts……..
Analysis…..a even bigger YAWN!
Let us try to be realistic….we need demand, not liquidity…….tax cuts will create liquidity and liquidity will create profitability and profitability creates NO jobs! Is that easy enough for you?
But wait! What is demand?………..analysis of demand with regard to consumer behavior and rationale when changes occur in variable factors such as price, income, substitute goods.
And then there is liquidity…….the ability to convert assets to cash quickly…….
Back in 2008, at the beginning of this present economic crisis I posted……
Governments in advanced countries have still not recognized this onset of a crash. They have proceeded on the assumption that the injection of liquidity into the system is all that is needed. It was thought initially that this injection could be achieved through the government purchase of “toxic” securities, but widespread opposition to that scheme has now made most governments accept the idea of injection of liquidity in lieu of equity, i.e. through the part-nationalization of financial institutions.
But injection of liquidity, even in this manner, is not enough. Credit will not start flowing simply because banks can access more liquidity. There has to be adequate demand for credit for viable projects by solvent and worthwhile borrowers. And this is not happening. First, the injection of liquidity does not improve the solvency of firms saddled with “toxic” securities, so that the risk associated with lending to them remains prohibitively high. And secondly, quite apart from this, the anticipation of a Depression makes borrowers chary of borrowing and lenders chary of lending.
This anticipation in turn derives from several factors: first, the bursting of one bubble is not necessarily succeeded by the immediate formation of another, so that some recession of a more or less prolonged duration is in any case inevitable. Secondly, the very scale of the current financial crisis is such as to entail an anticipation of a prolonged recession. And thirdly, since the recession has already started, the prospects of crisis-prevention now through the usual monetary instruments (including liquidity injection) appear distinctly dim. The scenario, in which tendencies towards increased liquidity preference on the part of private individuals and institutions and a downward slide in the real economy mutually reinforce one another, has already started unfolding itself and will continue for a prolonged period, unless governments now act to inject demand into the economy directly, apart from injecting liquidity. Until this happens on a large enough scale the Depression will persist.
ZZZZZZZZ….all that is so much mumbo jumbo, right?
I can fix that! Chuq’s economic law………demand creates jobs; liquidity creates billionaires……see it is that simple! Let us go back to another theorem…..a theorem that pertains heavily to the jobs debate in Washington…..and since our elected officials are not the sharpest pencils in the box when it comes to economics…..let me make it really, really, really simple for them……..
tax cuts creates liquidity, liquidity creates profitability, profitability creates NO jobs….one more time……PROFITABILITY CREATES NO JOBS!
Lobotero, you’re much better informed than me on this issue — but let me suggest that “liquidity” is a red herring. We have plenty of it. And the issue of tax cuts is not about increasing liquidity — we have plenty of it — but about business confidence. Why do we have plenty of liquidity and precious little job creation? Because business fears what comes next, and creating jobs creates substantial (entrenched) costs, without the prospect of matching profit (whether from productivity or sales). It’s the classic hoarding syndrome. And business fears what comes next because this administration has been very business-unfriendly — in multiple regulatory, environmental, and labor contexts.
I hasten to say, some of the regulatory, environmental and labor agenda may well be good things that we would wish to do, in due course. But the combination is toxic. It is the aggregation of assaults on profitability (never mind tax issues) that leaves the average company spooked about hiring and doing any further investing that would depend on a model of profitability in a context of assault on same. This is the left’s misunderstanding of rational calculation, the failure to account for self-preservation in the pursuit of noble goals, and the strange determination to demonize the only possible instruments of economic recovery.
I don’t believe tax cuts, by themselves, solve this problem. Yes, they’d pump up a profitability model — but they wouldn’t address the toxic uncertainties created by the hostile regulatory, environmental and labor agendas. If this administration wishes to restore business confidence — and avert Depression — then it must get very serious and realistic about easing burdens on business, real and prospective, so that business can get about the business of making money with a measure of confidence and hiring more people to help it make money — who then create the “demand” of which you eloquently speak.
And yet Kendrick all of these things things you speak of were in place during the Great depression and tax increases and government regulations helped the economy recover in quick order.
I don’t disagree with the aspect that business is dealing with governmental uncertainty but that has as much if not more to do with a recalcitrant and obstructive GOP, totally unwilling to work with Obama and wasting much of their energy doing things that are simply intended to make him look bad in the hopes he will be voted out next year. The biggest uncertainty businesses saw was the failure of the GOP leadership to contain their TP contingent to simply raise the debt ceiling and deal with spending cuts in a traditional manner.
These actions have little to do with getting the economy on the road to recovery but are purely ideological in nature. Obama’s part in this is his failure to implement the leadership necessary to over come such adversaries as Roosevelt did 80 years ago. He has wasted time attempting to be bi-partisan with a Party that has demonstrated they have no inclination to do anything that might make Obama look successful even if it does stimulate the economy and generates jobs
Morning Kendrick glad to hear from you again…a pleasure as always….I see it a little different….Obama is more business friendly than anyone would like top admit…his financial regs have little teeth…it has done nothing to stop the gambling that caused this problem……the high corporate tax is actually about 18% now after all the tax benefits……while small business are hurting and I am mean truly small businesses not what the SBA calls a small business……corporations are sitting on cash and buying up the competition so when things get better and they want them to as long as they do have to do it…..I think business is just playing a game that they know that no one will call them on….business is more concerned with the actual governing process than other things…they see that the system is crapping out and they do not want to be caught flat footed…..
Here is a bit for you to consider….
http://www.bbc.co.uk/news/business-14928774
We need a Works Projects Administration again! Let’s bring back FDR, within months he’d take us out of this funk.
Hiya politics…..did not Obama purpose sucha thing with his Civilian Corps?
Kendrick,
I mean no disrespect, but I have to say your argument is merely regurgitation – albeit, styled nicer – of the same conservative argument we’ve been hearing for years. It’s an argument from corporate neurosis and I find it to be dubious as hell.
Conservatives often say that nearly 50% of Americans pay no income tax at all, yet amazingly almost two-thirds of companies operating in the United States pay no federal income tax whatsoever. There are so many loopholes available to corporations that the official rate doesn’t matter.
Government Accounting Office
According to the Economic Policy Institute, taxes on corporations account for only one-tenth of all federal revenue.
(You’ll note the linked article is from 2008, but I am not aware of any major overhaul of the U.S. tax policy since that time.)
Your mention of the Holy Grail was particularly entertaining. Please tell me to what regulatory, environmental, and labor agendas (you mean assaults) are you referring?