Economy: Two Views: Federal Meddling: Boon or Panacea?
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Six months ago, the longest, deepest recession since the Great Depression officially ended, and things should be looking up. Corporate profits are at record levels and the stock market has rebounded.
Unemployment, however, remains unacceptably high. It’s worrisome that American corporations have found a way to make large profits without creating jobs.
We might take heart that official unemployment is down to 9.5 percent from its peak of 10.6 percent. Sadly, that reduction is not from new jobs, but because the labor force is shrinking. Many of the long-term unemployed are retiring early or giving up in despair. More than 7 million Americans have left the labor pool for good.
At the moment, interest rates are at rock-bottom levels and American corporations are sitting on over $1.9 trillion in cash. Yet companies are not expanding. It makes little sense to build or expand facilities when so much existing capacity stands idle and demand is weak.
We face a classic chicken-and-egg conundrum. Without more jobs, there will be little growth in demand for goods and services. And without that demand, companies have no need to hire. Breaking that cycle will not be easy.
Corporations exist solely to reward their investors by generating profits, so it falls to us (through our government) to spur job creation and economic activity, while at the same time taking steps to prevent future Great Recessions. Republicans and Democrats support sharply differing approaches.
Democrats believe that the only entity with the size and tools to turn this situation around is the federal government. It’s done so before, and we must engage it again. The recent recession did significant damage to the economy, and the repairs will be neither cheap nor quick.
The usual tool for economic stability is the nation’s central bank, the Federal Reserve. In normal times, the Fed can adjust interest rates upward to cool an overheating economy or reduce them to encourage investment and growth. We are now in what economists call a “liquidity trap.” Interest rates are near zero and have been for quite a while. Since they can go no lower, the Fed has few options.
Our best hope is deficit spending.
The Obama administration tried that with mixed results. Economists suggest that two factors interfered. One was that it was too small, limited by political opposition. The other was a sharp decline in spending by state governments. It was the latter that canceled out much of the benefit. Helping states cope with the downturn in tax revenues is a critical need. Cuts being inflicted in education are especially harmful to our economic future.
Although the Obama administration’s stimulus package stopped the rapid pace of job loss, our economy remains stuck in neutral. More is needed, and conditions are ripe for improving our infrastructure for future growth.
With interest rates low, the costs for repairing our roads and bridges, improving our airports and air traffic systems, and speeding up our rails will be far less than they would be in normal times. For too long this country has neglected the infrastructure that is crucial for economic activity.
Too, there are opportunities in alternative energy technologies and other emerging industries that could benefit from government help.
Opponents of government action point to deficits as a crisis and would have us believe that we are facing bankruptcy. Those fears are overblown and are mostly partisan rhetoric. Those voices were silent when the Reagan/Bush administrations tripled the national debt and the G.W. Bush presidency doubled it. The deficit is only a problem if we choose not to prosper.
The reality is that if we were in true fiscal trouble, borrowing costs would skyrocket as investors covered their perceived risk. But Treasury securities are currently at record lows, which suggest a high degree of confidence.
America is not broke. We remain the wealthiest country in the world, with a GDP equal to the two nearest economies combined. Our task is to restore our growth.
Essential to any fix is the return to strict regulation of our financial markets, and a sensible tax policy. Congress unwisely dismantled the structure that aided the growth and stability of our economy after the Depression. Coupled with the recently extended Bush tax cuts, which discourage productive investment in favor of gambles on dicey financial instruments, our economic growth has been stunted.
Only by harnessing the immense resources of our country can we take on a task as daunting as the one we face. Tax cuts haven’t done it. Allowing our roads and bridges to decay hasn’t helped. Firing teachers won’t improve the prospects for our grandchildren. Dismantling the Social Security system will only plunge the elderly into poverty. Allowing health care costs to soar has led to the decline of our middle class.
No nation can restore its greatness by cutting back. America must grow or face decline. Our job, as citizens, is to spur our elected representatives to get past their rhetoric and engage responsibly to accomplish the serious tasks before them. We must not let them inflict serious damage on working Americans in the guise of “shared sacrifice.”
Jim Heim is chairman of the Moore County Democratic Party. Contact him at democrat@heim.us.
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Comments
JimHeim 2 years, 1 month ago
Every budget submitted to congress by these two Republicans was unbalanced. Reagan and Bush signed each and every one of those budgets. They approved every penny spent. Tell me again how congress is the problem.
JimHeim 2 years, 1 month ago
The presidents proposed deficit budgets. Full stop.
The Obama tax cuts are corrosive to the economy and were a major error.
RadioNC 2 years, 1 month ago
You're right Jim, America must grow in order to prosper. History has shown us that housing dictates the speed of our economy, and as you pointed out we are now stuck in neutral. If the Fed's would renew the homebuying credit for the next two years, at a level that would induce a solid but not overheated housing market, millions of Americans would be put back to work and generate billions in tax revenues. The more often that we can roll each dollar over, the quicker we can put Americans back to work and increase federal revenues without increasing taxes or cutting services.
Zoey 2 years, 1 month ago
Housing, the answer to everything! Let's stifle out all of our precious resources and procreate like rabbits to fill these homes and strip malls. Clearly, we're doomed......
RadioNC 2 years, 1 month ago
Let me see if I got this right Zoey. You are entitled to a home but the new guy is not. That deep of thought must have given you a headach.
Ross 2 years, 1 month ago
I think what he is saying that we need to SLOW down with this growth stuff.
What do you do when there is no room to grow.......what then. Look at all the pollution and water shortages already in some areas. If this area has an extended drought we will be in bad shape. Give yourself a headache and think about that for a bit.
GeorgiaMan 2 years, 1 month ago
I think we need a Plan - maybe a series of 5 year plans, all important decisions will be made by a single centralized federal government with a limited number of people making all of the decisions for us. This plan should tell us what needs to be done, when it needs to be done and how it is to be done. All health care decisons will be made by the government, and housing will be provided by the government. If a business does not hre enough people then the government will force them to hire more people. Production of goods will controlled by government agencies. The government will have all control on the public education system. All students will learn in the exact same way and at the same time. All resources will be controlled by the Government because only the Government can make the best decisions. When the government makes lousy laws that encourage reckless decision making then governmen is the only way to make new laws to fix their previous lousy laws. BUT WAIT - This was tried once in a place called the USSR - didn't work. China tried it and it did not work. You want things to get better then vote laws to make the Federal government smaller. Turn power back over to the States. Limit the number of laws that Congress can pass. Balance the Federal and State budgets. PEOPLE the largest buyer of our Federal Government debt is ourselves.. How long can this farce continue. Make the tough choices now when you can, or make them later when there is no choice.
JimHeim 2 years, 1 month ago
GeorgiaMan, Do you have any ideas for improving our jobs situation? Just wondering ...
JimHeim 2 years, 1 month ago
Deficit spending. It worked to bring us out of the Great Depression and will work again. Pushing Americans into poverty (the Republican plan) will simply not work.
The next effort must be doing more to reduce the cost of health care. That is the single greatest threat to the economy after unemployment. What's the Republican plan for that?
JimHeim 2 years, 1 month ago
Yay! Poverty for all but the top .1%. Great idea!
GeorgiaMan 2 years, 1 month ago
Stop all deficit/stimilus spending. The more we borrow the more we cannot pay back.
1) Make our corporae tax rate the lowest in the developed world. Give companies who have moved overseas the chance to bring back their overseas profits (charging them a modest 5 - 10 % rate), ad allow them to relocate back here which will allow them to build more factories here, do more research here, more patents will be producted here and used here, R & D will come back and be done here.What ever it takes to change our tax structure to attract those jobs back should be done. Ou only chance is to make the USA the easiest place in the world to bring outside money in, and then utilize that money to rebuild our country. The aftershocks of having good paying manufacturing jobs coming back into this country will revive our economy and put us back the right track. 2) find a president who has some b****s , one who will use his veto authority to stop lousy bills from becoming law 3) let Congress know that we do not want them to solve every problem for us by passing a nother stupid law 4)Spend only what we collect as a country and save 10% of that for the future. 5) Take the next 2 -3 years and get rid of the Departments of Energy and Education - take the massive amonts of money that they are fed by the Federal government and give it back to the States directly. HEW needs to be throughly reviewed from top to bottom and when you are finished you could be rdi of at least 60-70% of that expensive sinkhole 6) shut down all illegial immingration into this country and remvove all illegals from this country, if somehow you can stat the illegals will no longer receive free health care, food stamsps, or any other special treatment instead they will receive a one way trip back home. 7) only elect people whether they be Democrats or Republicians, or Tea Partiers who will stan up and be counted as Americans not like most of our current pond scum sucking people we currently hae in office. NEED MORE INFO THEN ASK FOR MORE
JimHeim 2 years, 1 month ago
Increase deficit spending dramatically. That's the only solution. What will probably happen is a death of a thousand cuts as gutless Democrats in congress give way to the nutbag teabillies. Then you will see a slowing economy and worsening employment. Fooling around with Social Security will make things even worse. Clip and save this.
JimHeim 2 years, 1 month ago
Our side works hard to find solutions to the nation's problems. The right-wing just stands on the sidelines throwing rocks and calling names. That is why democrats find the current crop of republicans in congress totally contemptible.
MichaelFlorence 2 years, 1 month ago
The arrogance of your statement is one of the reasons we are in this mess in the first place. You need to read this statement again and ask yourself - Where are the Americans? Where are the people who do not care about taking sides against each, but will work together and solve our problems. There are good people on both sides of the Aisle, but they are overshadowed by people like yourself (and the far ritght) who want to pit people against each other, not have them work together. We can either stand together or we will fall.
I would only hope that since your are the head of your party in this area that you would not try and play one side against the other, but try to work together to solve our mutual problems.
Ross 2 years, 1 month ago
self deprecation is not a good thing!
TOYTIME 2 years, 1 month ago
Everyone go to You Tube and search Milton Friedman, there are several very good debates laid out in a calm rational mannor, (he dismantles Donahue without ever raising his voice). And before you say that it is old and dated, remember John Maynard Keynes is much older and much more dated. I'ts time for the grown ups here to watch this. Let the crying kids sit in the back until we get to our destination. They will thank you for it later...
JimHeim 2 years, 1 month ago
Sadly, Milton Friedman subscribed to a faulty economic model. His devotion to disaster capitalism (which worked out just great in Iraq, didn't it?) blinded him to the realities. John Kenneth Galbraith is a much better exemplar for a successful capitalist system.
TOYTIME 2 years, 1 month ago
1976 noble prize winner in economics... I'll take his word over Geitner's.
JimHeim 2 years, 1 month ago
I doubt you would believe me, so Google "shock doctrine" and see for yourself. The NYT article is most illuminating.
TOYTIME 2 years, 1 month ago
Again sit in the back and put your seat belt on, we'll be there in a little while.
JRowerdink 2 years, 1 month ago
Jim Heim’s proposed solution to our country’s economic problems is simply breathtaking in its wrong-headedness. If deficit spending was going to solve this problem why are we in this mess in the first place, given that over the last several years, we’ve had unprecedented levels of deficit spending? He seems to subscribe to the theory that if banging your head against the wall really hurts, just bang it some more and it will eventually feel better.
And as for spending this money on so-called infrastructure projects (roads, bridges, airports, etc.), very little of the last $900 billion “stimulus” spending was spent for this, in spite of all the democrats’ talk about “shovel ready projects”. Instead, they blew that money on every wet dream liberal idea Nancy Pelosi ever had. If they didn’t spend the last huge bundle of money on infrastructure, don’t come to me asking for more.
The only consolation I can find in all this is that even among our hapless politicians in Washington, zero republicans and very few democrats agree with Jim.
John Rowerdink
JimHeim 2 years, 1 month ago
Well, John, we still have the Bush tax cuts (taxes are lower than any time since the Korean War), bank regulation is nearly non-existent and union membership is below 10%. Where's that great economy we should have if conservative theory is correct? How come economic growth was so much better when the top tax rate was 50% or more?
Ross 2 years, 1 month ago
Mr Heim - give it up .......their heads of full of decayed wood....trust me - it is useless!
DaveyNC 2 years, 1 month ago
Mr. Heim, it's not so much federal meddling as it is that government (and healthcare) has cannibalized our jobs that make tradable goods. A country can only be prosperous by capturing capital from outside of its own borders, something that we used to be really good at and that Germany is currently doing very well.
From 1990 to 2008, government and health care accounted for nearly all jobs created. We cannot sell government services to China, nor can we sell health care to Brazil. This comes from a recently published study (see it here: http://goo.gl/MaZz9 ). We all know that we have decided as a country to stop manufacturing. We need to recapitalize that part of our economy. Building roads and bridges is all well and good and necessary, but does nothing to improve our various trade deficits. England won't buy a road from us, but they used to buy our textiles. We need to find something to take the place of textiles and cars and everything else that we used to build here. In order for that to happen, we have to make it easier to build things here because right now, it makes more business sense to build your next big factory somewhere else.
States compete among each other for factories and jobs. We need to do the same thing with our competitor countries; Germany, China, France and so on. We do that by cutting taxes and red tape. Cutting taxes, not offering tax breaks. We need permanent, structural change to our competitive environment. Obama and the Dems have proven that the various tax credits are little more than dancing around the edges of the real solution. Cash for Clunkers didn't exactly revive car sales, it just pulled forward sales that would have happened anyway. We have to get serious and stop tweaking things.
RadioNC 2 years, 1 month ago
Well said Davey. If we lower business taxes, and put the 21million unemployed back to work you would have a net increase of $10 Trillion/year in new tax revenues.
JimHeim 2 years, 1 month ago
We already lowered taxes. GE made $5 billion in profits last year and not only paid no taxes, but is getting a tax credit of over $3 billion. 2/3 of American corporations pay no taxes. What's plan B?
theonewithsense 2 years, 1 month ago
Do you really think that GE paid no taxes last year? Do you have any idea how our tax system works? Of course GE paid taxes, plenty of taxes. There is no company anywhere that is excused from paying matching payroll taxes-federal state and maybe local. This is where the majority of tax revenue comes from......people working pays the bills. Do you really think that 2/3rds of corporations have no payroll taxes, property taxes, gas taxes, sales taxes.......the list goes on and on.
DaveyNC 2 years, 1 month ago
You didn't read my comment closely. Yes, we lowered taxes, but only temporarily. I say that we need permanent, structural change to our system of taxation, not some tweak job. Businesses want certainty and right now, they don't see it. Stop with the tax credits and tax incentives and social engineering through the tax code and make permanent changes that are solid and predictable from year to year.
BigE 2 years, 1 month ago
Less than 13% of the country's wealth is in the bottom 80% of households and it is shrinking. Think about that for a few seconds. One thousand-1, one thousand-2, one thousand-3... Why is that? Is that good for the U.S.? Do you think there will be consequences that affect all of our lives because of that? I know, everyone who is poor wants to be poor. They are lazy and dependent and it's the government's fault.
Shrink the government, that is, fire the bloat departments... the police force, firemen, school teachers. Reduce military spending and reduce the payrolls at BAE Systems, Boeing, Raytheon, Northrup, etc. Yup, go ahead and reduce the government and eliminate all these household's income streams and poof-poof, magically new jobs will grow everywhere.
At the end of the day, rising healthcare costs are the major cause of our problems now and in the future. The scale of that burden as a percentage of GDP is by far the most significant economic issue for this country. So any energy exerted fighting about anything else is just a waste of time.
JimHeim 2 years, 1 month ago
You make excellent points. If health care costs continue their upward trend, they will consume all income by 2065. Obviously that won't happen. Somewhere between now and then the system will fail. Preventing that failure is Job 2 (after putting Americans back to work). Republicans ran on a platform of repeal and replace with regard to PPACA. So far they've put a lot of effort into repeal. Not many ideas about replacing. I wonder why.
JRowerdink 2 years, 1 month ago
If we really want to create jobs, we should start by implementing government policies that encourage, rather than discourage, job creation by the private sector. Here are some suggestions for starters:
Once we make America the best place in the world to own or start a business, the private sector will grow and create jobs and the government’s tax revenue will soar.
Creation of government jobs is a non-starter. For every dollar we spend on a government job, the government gets perhaps 15% back in tax revenue. It’s hard to reduce the deficit with that formula. It’s kind of like the businessman who was losing money on every item he sold but was quite sure he could make it up on volume.
The best thing the government can do is get out of the way.
JimHeim 2 years, 1 month ago
American corporate profits are at an all time high. Just how are taxes and regulations holding them back?
carlj1161 2 years, 1 month ago
It's just common sense when you don't have enough money to cover the bills, something has to be cut and revenue has to increase, that's just fiscal sense. But so far I haven't seen anyone cutting all of the areas that need to be cut. It seems as if we have four main areas of the budget, Medicare, Social Security, Defense, and everything else. It seems to me that we are concentrating on the everything else pile and not touching the other 3. I know it's not politically correct to touch Medicare and Social Security, but I have to believe there is some waste and fraud in these areas that could be cut. As for defense, where do you start, maybe pulling out of Afghanistan, Iraq, and focusing more on our defense as opposed to forcing our will on other countries? or serving as the World police force? We need to be able to take care of ourselves first, before focusing on the rest of the world.
marathonman 2 years, 1 month ago
What bothers me is that the lefties think the go'mint can get us out of this recession - like a snowball headed for hell - by hiring more folks and spending money on make work projects like infrastructure road, bridge, etc. The money that they will use for this is generated from tax payers. If we have so many folks out of work, who will pay the taxes to pay the extra go'mint workers. Where will the money come from for the parts and supplies needed to fitup for the make work projects. Print more, borrow more. Ok, say we borrow more - leaving that whole argument of deficit spending alone and who would be holding the note - how will we generate more income to pay back the loans? Nay, I say can the go'mint pull this off without another great depression followed by a big dust up somewhere when some creditor calls in the markers. I believe the go'mint has got to stop hiring folks to simply lean on the shovel and actually lay off many of those hundreds of thousands that Obama ordered the Fed go'mint to hire right after his coronation. Secondly, they must lower taxes on all business; encourage those who have gone overseas to return and pay a fair share say like 20% instead of the current 35%. Thirdly, stop with the mandates such as health care. Allow folks to make decisions such as many of us did back in the day before there was any health care. Nationalizing anything is socialist and ends in tyranny. Lefties have dead brain cells if they believe all they are saying such as Heim does in this piece.
BigE 2 years, 1 month ago
Your name calling is not contributing positively to your arguments.
If you had any substance behind your ideological ranting you would not consider every dollar spent by government to be going directly into a shredder. Government employees spend money (which stimulates the economy) and pay taxes (unless they make so little that they are exempt). Employees of government venders, e.g., Raytheon, spend money and pay taxes.
Think a little instead of repeating the same old inaccurate nonsense that someone else came up with. Find evidence that there is a linear relationship between reducing tax revenues and a growing job market. (FYI- You can't because there is none.) Corporate taxes used to be 25% of revenue for the government, now they are around 10%. Think for yourself. Challenge dogmas. Seek out facts and maybe you'll understand that not everyone who disagrees with you is a pinko leftist commie with "dead brain cells."
JimHeim 2 years, 1 month ago
What do you have against deficit spending? Did you know that the federal government has only run balanced budgets six times in our history? And did you know that each period ended in recession? Do you think that's a coincidence?