Actions speak louder than words

While I would like this blog to handle other things than just US politics and US economy, I saw a piece today about the GOP answer to the AJA (American Jobs Act) that just made me shake my head again.
The piece is available here: http://bit.ly/rmD7Nz

For those who haven't followed along with US media, the AJA is a bill proposed by the White House with the goal in mind to lower the US unemployment, which is currently at 9.1%, or at least it was in august, which are the newest numbers available from the US Department of Labor.

• The bill is estimated at an expense of $ 447 billions and is divided between such things as 
• Payroll tax cuts
• Funds for preventing the layoff of teachers and first responders
• School construction work
• Building of infrastructure (both public and private)
• Preventing home foreclosures and vacant commercial structures
• Unemployment insurance
• Temporary assistance for needy families
• Summer jobs
• Work training and retraining

All in all sensible projects that go hand in hand with lowering expenses somewhat for companies and getting people to work and putting more purchasing power in the hands of consumers so the economy can be restarted a little as well.

Well, that was the theory of course.

Then a memo went out in the Republican caucus about what was acceptable in this bill, which parts of it they could support.

What they figured they could support was.. $ 11 billions... 1/44 of the bill.

Ok..somewhat disappointing and disturbing, considering the bill really is a good outline for getting the unemployment down and getting money circulating again.

Then we move on to the more disappointing part, which parts of the bill they would support.

• A 100% tax cut on depreciation expenses for businesses
• A tax credit to businesses hiring veterans
• A job training program in the style of "Georgia works"

Almost half is tied up in the first post.

Most surprising of all (though not really) is the fact that the GOP, the ones that are opposed to taxes..are actually opposing the tax cuts that would help the common working man, their official reasoning being forced and nonsensical at best.

And what they are supporting is pretty pointless, at least on it's own.
Why?
Well the tax cut on depreciation expenses would be helpful if  businesses were needing to purchase new equipment to contend with increased demand, but there is nothing in what they are agreeing with that will increase demand so it is worthless and in the end only puts a bit more money in the pockets of companies, pockets it is not coming out of again in a hurry.

The tax credit to hiring veterans is a laudable one, if companies were in a position where they were actually hiring people, they aren't. And who will hire someone they don't need to get a tax credit of X when they have to pay salaries of 10X the first year?..No-one.

The Georgia Works programs.. job training programs can be effective, if there is a demand for labor trained in skills which there is currently no supply for. This isn't really the situation today. Also the Georgia Works program which is to be the foundation for this is pretty much a failure even small scale in southern Georgia with the states own Labor Commissioner saying that the program has significant flaws and would not work as a federal initiative. IT basically is a program that no matter what it was supposed to do basically has ended up supplying unpaid interns to businesses for a couple of months, with no incentives for them to actually retain them. (http://bit.ly/pLTB1d)

Well, for a political party that claims to be pro jobs, pro the little guy and all that.. Actions do speak louder than words..empty words as it turns out.

Debt insanity

Reading yesterdays bit on the attitude of  John Boehner towards the Debt Panel: http://wapo.st/ng7yCC I find myself wondering.
Wondering just how reckless the GOP is going to be in it's chase for more power, and whether it's members are as ignorant of the realities of economics as they seem.

It's no surprise by now that the US is in a recession. You can put any spin on it you want, or try any definitonal trickeries you want but the truth of it is that in reality it is a depression. It's also not one that the economy is bouncing back from quickly, as it did in '58, '61, '75 and '82, which are the post-war recessions of similar severity to the current one. These were also the worst ones in this time period.

How do you get out of a depression? You grow the economy. How do you grow the economy? Elementary economics tell us that; you grow the GDP.
What is the GDP? The GDP is a measure of the value of all final goods and services produced in a country in a certain timespan. There are three ways to determine GDP, without going into the specifics of each here I will jsut mention that in none of these ways is government investment something that lowers GDP. There are many factors but in general they are: consumption, compensation of employees, corporate profits, government spending, investment (private/corporate and government), taxes (yes taxes grow GDP) and some others, which ones you use at any point is dependent on which model is being used, the outcome is supposed to be the same whichever model you use though.

So lets see here. Taxes increase GDP..Government spending and government investing increases GDP, employee salaries and wages improve GDP, consumption improves GDP...

And the GOP wants to cut government spending, cut government investments, cut taxes, cut the minimum wage cut regulations on corporations and so on.

Their mantra is that this is ok because all this will create more jobs.

WRONG!
The reason why so many people are unemployed in the US right now is because companies have no use for their labor. Why is this? Because the consumption is too low for the corporations to max out their production potential.
This means that as it is they are capable of producing more than people are willing to, or able to buy.

No private company is going to invest in further production capability when it has capability to spare already, unless it is expecting a massive rise in consumption in the near future. They are not expecting this...

So that means there are less salaries and wages to go around. There is also a higher supply of labor than there is a demand so wages will also sink, unless protected by say..oh a minimum amount of wages you must pay. Simple supply and demand.

So now corporate investments are gone, employee salaries and wages are down.. which means consumption is also down.
What is the likely outcome of this is something called a "Devil's Spiral" consumption goes down, corporate profit goes down..wages and salaries goes down..consumption goes down..etc..etc..etc.


What will corporate tax cuts and deregulations, the old GOP solution to everything, do to help this?
Nothing...

Why not? Seems corporate expenses will go down and then profits up right? Well, there is some logic to that. But then we forget the fact that at the moment corporations can produce more than they need to so those profits will not be funneled into new investments at all. They will simply pocket them.
There is no need to blame corporations for this, it's simply good business, and that is their reason to exist.


Let's see what's left? Ah yes..Government spending and investment and taxes...
See where this is going?

This problem needs to be solved from the bottom up. First you need to increase consumption. How do you do this? You put money into the hands of the common person so they can afford to raise their consumption again. This will increase demand and through that production. Then you increase demand further through government investment in big things like infrastructure, building, renovating and so on. This leads to a bigger need for labor again, which leads to more jobs, more salaries and what do you know, things are looking up again.

But what about the debt?
Well I am not going to deny that the US has put itself in a hole there. One that it should be ashamed of since there really is no way it couldn't be seen coming a long long ways off. years and decades really.

Thing is, that if you can restart the economy and get it going back up again. The US economy is substantially sound, at least in the short and medium run (Medium here meaning at least a decade or more).

Unlike a private household a country can, without problem, run on a deficit for a long period of time.
Now if the economy is sound again there is no reason why the US should not be able to talk to it's creditors and come to agreements on paying down debt, extending debt by rolling it over and so on and get some breathing-space there. Then with a moderate, well thought out plan for reforming and adjusting the economy over time, servicing that debt should be fairly undramatic and far from the excruciating pain the GOP policies are pushing towards.

Also there is no need to raise taxes really. The tax level in the US is perfectly fine. What needs to be done is close all the loopholes and the tax cuts for the mega rich and the corporations. These are what makes the effective tax level among the lowest in the world. Among..the..lowest..in..the..world.. Companies aren't going to go somewhere else over a few percentage points.. But the effect of those few percentage points on the economy as a whole, will be drastic.

So, how long will they let political ideology and dogma win out over science and common sense?
How much pain will they put the common person through in their chase for power?

I fear to consider..