To those who propose tax cuts

Tax cuts do not create spending or stimulate growth when the economy is stuck in a liquidity trap. Show me a guy with disposable income who gets a tax cut, and I’ll show you a guy who saves that extra money instead of spending it. Cutting the corporate income tax is the most useless way of stimulating the economy, because as John Maynard Keynes points out, private investment drops off and that’s what causes a bad economy–so if we cut their taxes, they still won’t spend it–it’ll just sit in the bank like the bailout money has been. The economists seem more politically-motivated, instead of really offering an idea. If the same question was asked in a better economy, I bet their answer would sound about the same.

The way to spur investment and spending is twofold: 1.) reverse the expectation of deflation, so that investors will feel like they will make money on an investment and 2.) force spending so that more money gets moving in the economy–the only one who can do that is the federal government, since they can afford to lose money, and since they can just tax us if they need to pay it back.

Another point on spending, is that the stimulus money has to go to someone who MUST spend it, like state or local government, and like people who don’t have adequate income.

So, start with $150 billion for the state and local governments–which would prop up their budgets so they do not cut programs they will eventually restore.

Next, spend another $150 billion on infrastructure programs that are ready to go so that unemployed people will be put back to work.

Another $25 billion should go toward planning projects like sewer improvements and ecological restoration, such as the Everglades, the eroding Gulf Coast, along with rivers and the Great Lakes which have been damaged heavily with the last 150 years of industrial activity. This will set up another round of stimulus spending, since it will probably be needed.

Another $25 billion should go towards revamping IT for healthcare providers, since the US is sorely behind and in dire need of modernization. This will greatly reduce enormously heavy administrative costs and provide better information on which to base research. (Lots of money has been spent on developing technology in patient care, with almost no attention to modernizing and streamlining medical records or billing, or the “infrastructure” part of healthcare.) This will also allow for instantaneous sharing of medical records between institutions, improving patient care. This type of investment will also not be affected by possible changes in how healthcare is paid for.

Another $25 billion should be spent on improving the power grid and telecom systems. America is already getting hurt by the telecom industry’s reluctance to stick to old technology, charging higher prices for lower quality service than Europe or Japan, so the money should only subsidize wireless and telcom companies that will create competition in the industry, rather than stifle it, like the existing large telecom companies do. This will force lower prices and better quality service into the market.

$50 billion goes to the education sector for capital improvements to public schools and colleges, along with grants and loans for people to get educated for jobs in sectors that will be needed in this bad economy and after recovery. Bad economies always spur higher college enrollment, so help these folks go to school and pay their living expenses.

The remaining $75 billion could be used as matching grants for small businesses and nonprofit organizations. This could be anything from running a manufacturing business for profit to hiring a city cleanup brigade. Each applicant should have to develop a business plan and present this to an appropriate organization, such as the Small Business Administration (for businesses). The money should only go toward subsidizing an employee’s wages (up to a limit based on the local minimum wage, in order to prevent “fat-catting” and to keep people eating) and to loans on capital investment. It should not be allowed to go towards endowment funds or towards paid fund-raising. Businesses should have to prove that their business will remain viable in a normal economy without the subsidies.

The key here is to keep money from being wasted on things that don’t cause money moving in the economy, will be generally useful for many many years, will keep people working and eating (unemployment benefits may keep people eating, but don’t help the worker’s morale–having a job or being in school solves both problems). Welfare and food stamps don’t pay someone for work, and tax cuts only help people who have income to tax. Infrastructure, environmental restoration, technology development, and education all build value and create more spending. Efforts must be focused in these areas! Tax cuts, healthcare reform, and the like, are all separate issues from economic stimulus and shouldn’t be mixed.
— Lee/Cleveland, Ohio

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