Want to improve the economy? Then why would you focus your attention on measures that cannot possibly achieve that goal?
Geoff Colvin makes that point in the latest issue of Fortune:
No one in either party seems to dispute that America needs to create jobs and increase investment. I hate to be the one who says this out loud, but where do those things come from? They come from companies and the wealthy – not the focus of Obama’s plan at the moment.
To some extent this is understandable; he figures this economic crisis requires emergency measures, so he proposes massive federal spending plus giving money directly to individuals. But let’s think hard about the effectiveness of those measures.
Mammoth federal spending will certainly create jobs directly, providing a shot of Red Bull to the economy. But as a long-term means of employing people it’s unsustainable, and some economists argue that it accomplishes nothing, since deficit spending is really just taking out a mortgage against America’s future prosperity.
The other main part of Obama’s plan, giving cash directly to individuals, isn’t very effective, as we saw when President Bush and Congress tried it last year. Obama is calling his plan a tax cut rather than a tax rebate, but since it’s a one-time tax credit rather than a reduction in tax rates, it’s the same thing. And once again we can expect that people will save most of the money, especially since none of it will go to high-income people who might actually spend it.
So am I suggesting that we stimulate the economy by sending government checks to Bill Gates and Paris Hilton? Of course not – just the opposite, really. Rather than spending more, our plutocrats need to invest more, since private investment creates long-term jobs. So let’s offer high earners the very modest help of just leaving them alone, not doing what Obama proposed during the campaign and reducing their investment incentives. He advocated increasing the capital gains and dividend taxes on couples earning $250,000 or more – exactly what we don’t need.
The Obama team has hinted that it realizes as much and will not push for investment tax increases this year. Instead, the new administration may just wait for those rates (as well as ordinary income tax rates on the wealthiest) to rise as they are scheduled to do at the end of 2010. A question: If leaving those rates low is good for the economy now, might it not still be wise later?
For another critique of the Obama plan, see Roy Cordato?s recent guest Daily Journal.
