Why is the stimulus not working? Because the creation of wealth is caused by two things: 1 - Increases in efficiency and 2 - Invention. (New products in the market place) It is counter intuitive to think that a tax cut will bring more tax revenue into the government, but that is exactly what happens when the government lets people keep more of their hard earned income. Why, you ask? The reason is because we can spend/invest our income much more efficiently than the government can. Business, by its very nature, seeks to increase profits by increasing efficiency in manufacturing and by investing in research and development of new products. You will notice that people invest in businesses, not in government. They lend money to the government or they pay taxes. Another tax cut would have been in order but, instead what we got was a very small tax cut and a lot of government spending on things that will not increase efficiency in any sector of the economy or create any new products. There are of course, exceptions to this rule (most notably the space program), but by and large it is the private sector that drives economic growth.
Our standard of living is higher than it has ever been in recorded history and longevity is greater than at any time before and now we are about to kill the goose that laid the golden egg because the people we elected into office had to play favorites' instead of thinking of what is fair for all. The government created Fanny and Freddie to create a market for mortgages. This in it self was a fore ray into the private sector by government that should not have been tolerated. These quasi - government institutions were further abused by some well meaning congressmen who thought it would be a good idea to lower the lending standards so that people with smaller incomes could afford homes. Mortgage companies and Wall Street saw an opportunity to make some fast money and here we are, unemployment at 9.5 % and climbing.
But, the crisis did not start there. It started in 2000 when much of our manufacturing and high tech industry went abroad and the stock market bubble burst. No one was screaming then, because the perception was that we had more work than we could handle. We were told than, that sending our manufacturing to the Far East would bring us less expensive products. Some products might be less expensive, but at the cost of a very high unemployment rate. I even recall one arrogant congressman commenting that we do not need the jobs in the textile industry because they are junk jobs, as if that type of work was below us.
Now, we have focused trillions of dollars into the power of the presidency. President Obama is hiring czars to control banks, corporations and industries and is now pushing for National Health Insurance. Folks, pooh, pooh me all you want, but this is really is going to be a catastrophe. Already the waste is mounting with barely 10% of the initial allocation being spent. But, the timing has to be right. Things have to feel better just before the 2012 election. A tax cut would have helped, quicker, but that is not what was required for the politicians. We have been told that spending a lot of money is the cure when, in fact, it is a drug that will only delay our economic death for a while. Pouring trillions of dollars into an economy that is not expanding will only cause the dollar to inflate. With out a large enough manufacturing base, our deficit will continue to grow. The correct answer to the problem is to cut taxes enough to attract foreign investment and have industry return from abroad. Only then can we begin to make a vigorous recovery.
Joseph L. Conigliaro
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