Wednesday, August 17, 2011

Rigid aherence to the dogma of low taxes is killing our economy

You're in a car headed down the highway traveling at 65 MPH.  You're headed out of town to your weekend cottage get-a-way.  So its a routine trip.  Its a trip you've done so many times in your life that you're confident you could drive it in your sleep.  Suddenly,  a mammoth MAC Truck crosses the median and is headed straight at you.   Keep going?  Hell no.  Your brain instantaneously kicks into gear and makes adjustments to guide you to safety.   And that's the problem with our Republican Party.  We have no brain.

Think about this story.  For road, car, truck, brain,  substitute Republican dogma, low taxes, economy, tax policy.

Our party is all about low taxes,  come hell or high water.  We stick to this philosophy at all times.  But the economy around us is constantly changing.  And as the economy changes,  we need to be flexible enough to change our approach to managing the economy for continued growth and prosperity.  Therein lies the problem with Republican political leaders.  They don't change when its change that is needed most.

Tax cuts are helpful in a booming economy.  When economic activity is booming,  our nation's capacity to produce goods and services become constrained.  Shortages of production capacity or labor might even materialize,  driving up costs and inflation.  So in a booming economy,  tax cuts help capital expansion, spur LT investments. The outcome is an increase to capacity,  better matching of supply with demand,  and continuation of dynamic growth.

Tax cuts and a favorable taxing structure are not so helpful though when times are tough.  Tax cuts overwhelmingly go to the wealthy.  In tough times,  wealthy people have no motivation to invest for capacity expansion.  They take the money and stuff it in the bank and under their mattresses.  That accomplishes nothing to get our economy moving forward.

Our problem now is a lack of demand for goods and services.  We have plenty of production capacity.  Too many plants are sitting empty and unused.   And we have too much labor.  There are too many Americans without a job.  Why then do our Republican Leaders want to give wealthy people more tax breaks? That money in the hands of the wealthy winds up sitting,  accomplishing nothing.  Why then do our Republican leaders act so stupidly? Because our Republican Leaders lack a brain.  They are driving down the highway and they're not going to alter direction, no matter what.  They stick to the same script,  tax cuts to the wealthy,  no matter what the economic conditions.  They see the Mack Truck.  But they are bound, bent and determined that they can just keep on driving, taking the same action over and over.  The wreck kills our economy.

Our problem today is not capital formation,  lack of savings,  capacity constraints,  lack of plant or labor.  We have massive excesses of savings, plant, labor.  Our problem is lack of demand.  To solve our problem,  we need to think in terms of taxing the wealthy,  and transmitting that money somehow,  someway,  into mechanisms that will spur demand.  i.e., Tax the wealthy,  create infrastructure jobs for the unemployed.  Yet,  our Republican politicians stand there like complete and utter idiots and insist that they must stick to their dogma of "No Tax Increases", while the wealthy grow more wealthy,  the wealthy are taxed at rates significantly lower than the middle class, and demand goes wanting while all those tax breaks are piling up in banks and under mattresses (on deposit at the FED).

We're stuck. We're stuck in a terrible economy. We're stuck because our Republican Party lacks a brain. And the Mac Truck is headed straight at us.

North Carolina deserves better than Republican Senator Richard Burr.

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