BRIAN DEATON: Elementary Economic Facts Missing in Debate Over Stimulus
Several recent letters to The Pilot criticizing the recent stimulus package seem short on facts and an understanding of economics.
The study of economics teaches several lessons: There are long lead times between actions and consequences; economic performance is influenced by both cyclical and structural factors; the complexity of economic cause-and-effect relationships escalates dramatically as you move from individual business to national to global environments.
Our current economic situation is the culmination of many years of greedy behavior and deferred, irresponsible actions -- by individuals, business and union leaders, financial institutions, and public representatives. These parties have assumed the future would take care of things without making the investments and judgments necessary to ensure that the expected future occurs.
An analysis by Moody's Economic Advisors shows that tax cuts are much less effective than government spending in providing a positive stimulative effect. The returns on various spending approaches provide a range from 1.38 ($1.38 in stimulative effect for each $1 of expenditure) for general aid to state governments to 1.59 for infrastructure investments to 1.73 for a temporary increase in food-stamp assistance. The policies advocated by the Republican congressional leadership all have very low returns: the Bush tax cuts: 0.31. Tax cuts on dividends and capital gains: 0.38. Reduction in corporate tax rate: 0.30.
The simple fact is that tax cuts, unless highly targeted to individuals more likely to spend (vs. save or invest), have never had a significant stimulative effect. The Reagan administration, cited by Republicans as the example of the power of tax cuts, increased federal expenditures significantly, mostly for the military.
Our real concern about increasing the federal debt should be what we are getting for this deficit financing. The debt results from two major sources: overspending in relation to revenues for current programs; and long-term investments in public infrastructure. Overspending for current operations is a problem; longer-term investment in productive capacity is not.
From the 1930s through the 1960s, significant public investments were made in energy sources (dams and lake systems), plant and equipment (in World War II), transportation (Interstate highways), science and technology (NASA), and education (community colleges).
But this debt financed the creation of a very cost-effective infrastructure that supported strong economic growth through the 1990s. Our estimated debt today is $10.7 trillion, 66 percent of this total accumulated during the Reagan and G. W. Bush administrations resulting from substantial increases in military spending and concurrent tax cuts. Accusing Democrats of foisting an untenable debt on future generations of Americans is just so much smoke.
Today we are faced with more than a cyclical downturn in the economy and need more than short-term inducements to spur consumer spending. Our energy, transportation, production and education systems are not competitive with those in other developed and developing nations. We cannot revive and sustain growth until we correct this disparity.
Our infrastructure needs go well beyond "shovel-ready" road and bridge projects. While it is true that small business is the engine that drives innovation and growth in the American economy, the Republican assertion that the biggest hindrance to small-business growth is the tax rate is absolutely wrong.
A tax cut will not lower the costs incurred by businesses due to unstable energy sources, deficient worker skills, ballooning health-care costs, and fractured, overutilized transportation and communications networks. Addressing these barriers to sustained economic growth is just as important as short-term job creation.
These projects, by their nature, have longer lead times to bring online. But not approving them now just extends their implementation further into the future -- another example of deferred, irresponsible decision-making. The stimulus package reflects a good analysis of the short- and long-term causes of our current economic dilemma and provides appropriate strategies to overcome them.
A mantra in several recent letters is ensuring individual freedom. In a civilized society, individual freedom must be accompanied by individual responsibility and respect for the rights of others to "life, liberty and the pursuit of happiness." Restoring this balance is what President Obama's agenda is all about.
Brian Deaton, who lives in Pinehurst, is chairman of the Moore County Democratic Party.
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