Thursday, November 8, 2012

This Is Scary

Senator Saxby Chambliss sat down for an interview with Suzy Khimm recently.

One of his answers managed to fit more ignorance in one paragraph than you might have thought possible.

"From a stimulus standpoint, we don’t need to be spending any more money. We’ve seen that the Keynesian approach did not work then, and it won’t work now. We need to respond to the marketplace. CEOs around the country are sitting on a lot of cash because of sequestration, as well as failure to address  the long-term debt issue. You’re going to see that cash flow back into marketplace from a capital standpoint. That’s going to create jobs. Stimulating the economy through spending won’t work — that’s been proven. Stimulating it through real responsible tax reform will."

Let's unpack:

 From a stimulus standpoint, we don’t need to be spending any more money.
Yes we do if we want to improve the employment figures and speed economic growth.  The AJA would be a good start.

 We’ve seen that the Keynesian approach did not work then, and it won’t work now.
We saw that ARRA halted the 2009 slide in the US economy, and began the turn around to economic growth.  (Though as the stimulus was inadequate, growth has been much slower than it would have been with a more aggressive Keynesian approach.)

 CEOs around the country are sitting on a lot of cash because of sequestration, as well as failure to address  the long-term debt issue. 
Corporations are sitting on over a trillion dollars in cash because low demand gives them  no incentive to invest.  (They were already sitting on their cash before the sequestration silliness was passed.) What businesses should be doing is using the cash on hand to pay their employees more, both as a matter of basic fairness as well as to promote economic growth,  But as the power of private sector unions has been eroded, there is no pressure on corporations to share the profits from increased productivity with their employees.

 You’re going to see that cash flow back into marketplace from a capital standpoint. 
It's not clear what this means, but if senator Chambliss means that corporations will invest in new capital goods, then they will only do so when their perception of current and future demand will justify the investment.  The quickest way to increase demand is or the federal government to  get spending money in people's pockets - preferably through jobs programs like infrastructure improvements.

That’s going to create jobs.
If the "that" were clear, this might make sense.  If the notion that there will be a supply side increase in investment before the demand is there, then it is deeply silly.  It's jobs that  give people the income to spend that created the demand that results in business investment  to meet the demand that results in new jobs that ...  - the virtuous cycle.  But the cycle needs to begin with jobs - or at least income.

Stimulating the economy through spending won’t work — that’s been proven.
Stimulating the economy through spending does work — that’s been proven, both in the 1930s and 1940s, and in 2009 - 2010.


Stimulating it through real responsible tax reform will.
This is a completely meaningless statement.  Reducing taxes on lower income people is stimulative. Reducing taxes on upper income people is not.  Reducing corporate taxes can have stimulative effects, but only in an economy where the reduction in tax payments releases money to put to use in investments justified by demand.

So why the title of this posting?

The fact that a Senator with this degree of ignorance is in a position to set policy, and to obstruct a program of realistic economic policy proposals that could get unemployment down and increase growth, is deeply scary to me.









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