Until Midterm Elections...

Scott versus Scott

Welcome to our blog. Here we will debate the days most serious topics and allow users the chance to discuss the topics as well. The range of topics will vary, but one thing will remain certain, the debate will rage on. Scott Lesinski is a proud conservative and Scott Jones is a proud liberal. However, the roles will switch on some topics. Stay tuned.

Scott Lesinski is currently an actuarial associate for a large human resources and insurance consulting firm in Saint Louis. He is also an avid student of US history and enjoys following current events, with an eye to their contextual relationship to the past. He is also, in fact, a former student of Mr. Scott Jones. Scott is working toward his FSA credentials, which is akin to earning a PHD in Actuarial Science.

Scott Jones is currently a high school social studies teacher at a high school in suburban St. Louis, MO. He teaches World History, AP American Government and Senior American Foreign Policy. He has a BS. Ed. (Secondary Social Studies) from the University of Missouri - Columbia and a M.A. (History) from Southeast Missouri State University. He is currently working on a dissertation in character education to earn a Ph.D. in Educational Psychology.

Thursday, October 8, 2009

The Definition of Insanity...Stimulus 2?

http://apnews.myway.com/article/20091008/D9B76AUO0.html

We haven't discussed the economy for a while on this blog, and I saw this headline on Drudge today, which really got me thinking that this is a great teachable moment.

Just to recap:

Unemployment rate is 9.8%. U6 unemployment is 17%. Our economy is hemorraging jobs and our deficit for FY 09 is $1,400,000,000,000. The Congress recently voted to increase our debt ceiling above $10,000,000,000,000. In just 1-2 years, we'll see our debt climb over $12,000,000,000,000.

As a result, many nations are secretly (well, not so much secretly anymore) discussing switching to a different currency than the dollar for the oil trade. The Chinese have suggested one world currency, and others have expressed an interest in using a different currency other than the USD for the world's reserve currency.

Obama's own economists, along with such notable names as Alan Greenspan, predict our economy will remain in a slump for the next 9-15 months at least, depending on who you ask. The discussion has centered on the fact that we will not be experiencing a typical "V" shaped recovery, where we slope down for a while, then hit the bottom and come back. Rather, some economists are saying we'll do a "W" shape or a "U" shape...drawing out the recessionary phase for a prolonged period of time.

Obama himself has said he expects unemployment to crest over 10% before coming back down, even after he threatened that if we did not immediately pass his "stimulus" bill without letting the Congress read it first, we'd see unemployment over 8% (WTF?)

In spite of all this terrible economic news, Obama has continued to push his healthcare takeover, which has recently been scored by the CBO at $830,000,000,000. I, for one, do not accept that number, since every single major government program has cost far more than predicted, while running into bankruptcy and failing to address the problem it seeked to fix (see "the great society", public education, social security, medicare, medicaid, etc).

Furthermore, the Cap and Trade boondoggle has not gone away. Despite all kinds of evidence that the Earth is entering a cooling trend due to record low sun spot activity, we are constantly told that in order to prevent global warming, we have to submit to thousands more each year in taxes and reduced economic growth.

Enter "Stimulus 2". Although, Pelosi and her brethren don't want to call it that. Wonder why? Maybe because the ideas floated are as good as this one proposed by former Republican-In-Name-Only-Convert-To-Democrat-To-Get-Reelected Arlen Specter for stimulating job growth:

"A proposal by Sen. Arlen Specter, D-Pa., would provide a $4,000 tax credit, to be paid out over two years, for each new employee. His office could not provide a cost estimate."

This idea represents the height of ignorance and exemplifies the kind of thinking that leads us into these types of recessions. Does Mr. Specter actually think by offering $4,000, he'll get companies to hire people? Why do companies hire people?

Companies and businesses, large and small, hire people when they have work they need help doing. If the salary of the new hire is $50,000, the cost to the employer is closer to $75,000-$85,000 including taxes and benefits. Thus, the $4,000 tax credit is totally useless.

What I ask is this: Why, in the face of such utter failure of government, do we find ourselves looking to government for answers? Government got us into this mess with its over-regulation, fraud and corruption. We've spent 9 months steadily losing jobs with no sign of recovery. Already, unemployment benefits have been voted into extension. Calls for more "stimulus" are proof that the original has not succeeded in doing what was promised (I contend that it has done precisely what was intended, but that is another topic).

Why not try something else? Only 14% of the "stimulus" bill has been spent (because most of it is slotted for 2010 and should be more aptly named "The Democrat ReElection Act of 2009"). Lets just cancel the rest of the stimulus and totally eliminate Corporate and Capital gains taxes for 2 years. You want economic growth? I'll give you economic growth.

I read a story last month from the Whitehouse that claimed the stimulus has "saved" over 1 million jobs. We've lost about 3 million since it was passed, but somehow, by some magical statistical analysis, Obama discovered that we "saved" 1 million.

Folks, this is just ridiculous. Here we are, facing double digit unemployment, and instead of hearing positive ideas and feedback regarding the president's economic policies, all we have are totally unprovable claims of "Well it would have been WAY worse had we not acted!"

How the heck do they know? You can't prove a negative. What you can do is look at the results, now 9 months in, and reevaluate your policy.

A typical recession lasts somewhere between 5-11 months, if left alone for the market to correct. This one began in December of 2007. Its October 2009. Remember those UCLA economists who determined that the Great Depression lasted about 7-8 years longer than it should have BECAUSE of FDR's actions?

I wish Obama had read that study. Unfortunately, it appears we are doomed to repeat history.

8 comments:

  1. I posted this some time ago as a comment to something else and it didn't get any response. That could be because we moved on (I think it was under Scott L.'s corruption entry...)

    While Scott is quick to blame government for all of our failures, he isn't entirely wrong...just partially.

    The reason for government's ineffectiveness is special interests, which is something Scott attacked in his corruption entry. The Executive and the Legislature are dominated by special interests. It costs over $100 million to run an average Senate campaign. If it is a hotly contested one, then add 50%. It is estimated the MO campaign for Bond's Senate seat (the one once held by the great Thomas Hart Benton) could cost $200 million in 2010.

    WOW!!!

    Where does that many come from...Special Interests. The Presidential race in 2008 set a record for money spent on both sides. Where does that many come from...Special Interests.

    In fact, the only branch not directly affected by special interests in the Supreme Court, which is why its approval rating are almost always above 70%, even after a hotly debated decision. Even when people disagree with the Court, they know the nine members voted on their conscience and educated opinions and not because someone gave them money for re-election. It is not surprising to see former Justice Sandra Day O'Connor trying to end judicial elections in the various States.

    My solution...(and I think it might kill two birds with one stone)...

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  2. 1) Ratify a new amendment to the Constitution demanding Congress pass a balanced budget and can not add to the debt except in a time of DECLARED WAR.

    2) Pass new legislation that strips corporations as individuals status. Corporations are not individuals, but instead a group of individuals. This is important from a Constitution perspective. In this manner, board executives would be sued and not the corporation. Punitive damages paid by corporation would vanish because they could not be sued. Suing private individuals is always much more difficult to win. Juries attack faceless corporations and not individuals.

    3) Because of this, only individual persons could donate to campaigns. No more corporate giving. This would make it much more difficult for special interests to dominate our political system.

    4) This is the big one, as it relates to this entry. Set the corporate income tax at 0%. That is real job creating stimulus. Since corporations would be not be considered people, then they can not be taxed. Tax individual income and not the source of the income.

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  3. As I see it, this solutions might solve some economic problems and the perceived (if not actual) corruption of our government (at the Federal and various States levels).

    By the way, setting the corporate income tax rate at 0% would increase salaries, increase employment and increase employer's ability to help with health insurance. This could be a win-win-win-win all the way around.

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  4. Holy crap SJ, when did you become such a capitalist? :) I thought I was reading my own post there for a minute.

    You are absolutely right about special interest and the money ruling the day in Washington. Franklin warned us against making elected office a position of both power and profit, since one without the other is, while not infallible, at least not conflicted, but the two together corrupt entirely.

    I like the idea of taking corporations off the tax roles. You are right when you say that corporations (and all businesses really, but corporations have such larger potential) are the engine of true job-creating stimulus. Also, zero taxes on corporations will decrease cost and drive down prices to consumers, so purchasing power will increase.

    Listen, I've been saying it here for months, zero out the corporate tax rate, drastically reduce capital gains taxes, eliminate the death tax (which most severely hurts small business owners who are sole proprietors~roughly 2/3 of all small businesses), and yes, even reduce personal income taxes. The size and scope of our government has gotten WAY out of hand, and it is very largely due to the constant flow of dollars from special interests to Congress and the President. (I'm not just condemning Dems here, Republicans suffer from this ailment as well.)

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  5. Another point that really needs to be understood is maybe a little esoteric, but it is fundamentally critical to our economy and that is the value of our US Dollar.

    With all the debt we are wracking up, it is now just a matter of time as to when very high inflation kicks in. This is not hard to believe, in the late 70s and early 80s rates were in the 15-20% range. Like you'd go to get a home loan and a "good" rate would be a 30 year fixed 13.5% annual percentage yield. Today, good rates are as low as 4.75%.

    High inflation rapidly devalues the currency, meaning every dollar you spend is worth less and less, so prices will skyrocket.

    High inflation is caused from a large surplus of money in the money supply (too many dollars chasing too few goods). We currently have this problem as the Fed has the prime rate set very close to 0%. The problem is, in our current economic recession, tightening up the money supply will only further deepen the recession. Unfortunately, we're going to have to pay the piper one day or another.

    The true insanity of all of this is that in spite of the fact that our dollar's value is already plummeting, in spite of the fact that China won't buy any more of our debt, in spite of the fact that many Arab nations and others are discussing dumping the dollar as the world's reserve currency and using some other currency for trading oil, our President and Congress are rushing full steam ahead to shove through an unpopular healthcare bill that will drastically raise our debt further and an even more unpopular "cap and trade" climate bill that will cost families an average of $8,000 per year in higher energy cost and lost productivity.

    My friends, simply put, this is like pouring gasoline on your burning house in an attempt to put out the flames. This is driving straight toward a cliff and instead of hitting the break, you hit the gas full throttle. These actions being pushed by our Congress and President are fundamentally antithetical to sound economic policy. You must understand this, that despite ideology, numbers do not have ideology and the Chinese don't give a rats ass if we have national healthcare, when they call their debt, we are finished. Unless you propose going to war with China over our debt...

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  6. I disagree with cutting the capital gains tax (except maybe on initial stock offerings). The capital gains tax actually does little to encourage business growth. It is strictly a tax on dividends paid by the corporation. I am sick of companies making decisions based strictly on increasing stock dividends. This mindset actually keeps companies from investing in R&D.

    My point towards the corporate tax rate (and I concede that it should apply to all businesses that employ people - would not apply to single proprietor businesses, but if they empoy one individual full-time, then they get the tax break as well. Remember, this is about job creation), is that I want corporate giving (non-profit or for-profit corporations) out of elections.

    As it stands right now, according to FEC v Wisconsin Right to Life and the expected ruling in Citizens United v FEC, corporations are considered individuals under the First Amendment's Free Speech Clause. Therefore, and I have no problem with the logic of this, corporations (for-profit and non-profit) have the same First Amendment rights as individuals when it comes to elections. In order to strip special interests of their control over elections, we must change the status of corporations.

    Again, this is win-win. Corporations are stripped of their individual status and, therefore, their speech can be regulated as it concerns elections (end of special interest control). At the same time, only individuals can be taxed (see Article I, Section 2 and 8 and the 16th Amendment), wich would preclude corporations and businesses employing at least one other person from being taxed (job creation stimulus).

    This is a legitimate compromise between liberals (who want corporate giving regulated in elections) and conservatives (who want lower taxes).

    However, what are chances this being enacted? You know, with special interests dominating our elections.

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  7. Also, as it concerns the inheritance tax (not a death tax because only the living can be taxed), 98% of all estate issues are exempt from the inheritance tax. Only estates gross valued at over $3,500,000 are subject to the tax.

    Property values on the death tax are valued at the original purchase price if sold to a non-heir. If a heir decides to buy the property, they pay their proportion of the tax regarding the sale.

    Furthermore, the gross value of the estate is determined after certain deductions are considered. Lawyer fees, executor fees, donations to certain charities are not considered part of the gross value of the estate.

    Therefore, only 2% of all estate cases are subject to the inheritance tax. As of 2008, the taxes collected on inheritances amounted to .001% of the Federal budget.

    In theory, I am in favor of this type of progressive taxation. In reality, this is such a non-issue that I would have no problem ending the tax.

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  8. Why do you say that “history is doomed to repeat itself”? When Obama went to take office, the economy was in a mess. Bush really screwed things up. We are in debt like crazy, unemployment is rising, the economy is heading towards a depression, and so much more. People expect a quick fix. I have learned in my economic class that it takes a while for things to get going. I also learned sometimes things have to get a little worse before they get better. Bush really did a number on our economy; we need to give Obama a little bit of time to fix it. We need to have faith in what our president is doing. The war that we are in does not help, as well. We spending money likes it’s candy. I am not a firm believer in the war, but in all fairness, I have not done a lot of research. I think we could be spending money on things that we really need. WE need to be spending money on things like—healthcare, help for the unemployed, payback some of our debt that we are in. Clinton might have been really screwed up with his personal life, but he was putting our economy back on track. Then we have idiot number two who dug us so far in the hole, the sun is not shining. Now, we need to fix it, and that is going to take time.

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