Time for a New, New Deal?
Economics / Economic Stimulus Aug 15, 2010 - 03:58 PM GMTBy: PhilStockWorld
What are people thinking?
It is interesting to see so many of the same people calling for a "double dip" recession while at the same time railing against government spending. The US Government is spending $3.5Tn this year. Admittedly that's $1.5Tn more than they have, but it's quite a lot of money no matter how you look at it. Conservative, born-again deficit hawks (they were born-again the day Obama was elected) will tell you the solution is to cut taxes and let corporations trickle their wealth down on the bottom 99%, well over 20% of whom are unemployed or under-employed.
The Big Lie being told by the right is that we can solve our problems by cutting spending and (ROFL) lowering taxes. Let's put lowering taxes over to the side and look at cutting spending. By far, our single biggest discretionary line item is Defense, at $782Bn a year. The sum total of all other discretionary spending is only $437Bn so cutting 100% of non-defense discretionary government spending would knock not even 1/3 off our $1.5Tn debt.
What exactly would be included if we make all or part of those $437Bn in cutbacks? Here's a great chart from Wallstats on Death and Taxes, which I think every deficit hawk should buy the poster of (6 square feet) and put in their office with red lines through all the programs they can do without. Try it, it's fun - see how much money you can save!
Of course, let's keep in mind that the $1.5Tn the government spends directly employs 2.7M people and millions more indirectly so, for every person you cut, make sure you add back $20,000 a year for unemployment benefits and administration (or are we going to throw them all on the street?). So that's, unfortunately, $20Bn spent for every million jobs you destroy. Gosh, this game gets complicated, doesn't it? Here's a nice chart you can throw darts at and see how many of these guys you can kick to the curb by Christmas because that'll fix the economy, won't it? Don't worry, I'm sure none of them are your customers because surely you don't deal with THOSE kind of people:
So we cut, for argument's sake, 50% of our $437Bn discretionary budget and that leaves $1.1Tn to cut out of our $782Bn defense budget. Hmmm, tricky... I suppose we're done with TARP in 2010 so there's $150Bn gone but maybe we don't want to default on our interest or other mandatory spending items just yet so that leaves, AH HA, Social Security and Medicare/Medicaid to give up $1Tn of their $1.35Tn - problem solved!
Well, almost solved because, according to the 14th Amendment to the Constitution (oh that thing), right there in section 4, is the statement that: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." So we're stuck with those damned Social Security obligations (the ones people put money into their whole lives on the good faith that the US Government would take care of it for them and pay them back when they retire) unless we can figure out a way to get that 14th Amendment repealed so we can default on that obligation.
Well thank goodness once again for our Conservative cousins because House Minority Leader, John Boehner, is already on the case and has suggested repealing the 14th amendment under the guise of blocking citizenship for children born in the US to immigrant parents. Aside from the fact that Boehner and the other yahoos who are in favor of this amendment may as well pull up Lady Liberty's skirt and bend her over Ellis Island and gang-rape her on national television, it is now becoming clear that the ENTIRE anti-immigration mania, from the day Bush first suggested a fence between Texas and Mexico, has really been about mounting a back-door attack on Social Security - the true enemy of the right since it's founding in 1935.
Even today, the Government of the United States collects about as much money from it's working citizens for Social Security ($891Bn) as they do in total taxes ($915Bn), which is kind of strange when you consider that Social Security payments stop being collected after $106,000 in income (the bottom 90%) and they are only 6.2% from the employee and 6.2% from the employer so it would seem a bit surprising that our supposedly 35% income tax only manages to take in a grand total of $24Bn (2.7%) more than the social security payments, doesn't it? I guess we'd have to conclude that SOMEONE (perhaps the top 10% of the someones) is not paying their taxes...
This is where part two of the Conservative Big Lie comes in. Cutting taxes will lead us to prosperity. Sure, I could take the easy way out and say "no it won't, it will only leave us further in debt," but that is obvious to a 5-year old. I won't insult your intelligence by explaining that, if you are a business (and the US Government is a business) and your bills exceed your income - then voluntarily cutting your income is not likely going to cause magic fairies to appear and wipe away your bills.
Of course the real glove-across-your-face insult to your intelligence comes when they try to tell you that giving tax breaks to the rich and to corporations will help. Here's the chart on the right - US Corporations only paid a grand total of $138Bn in taxes in 2009 (6.5% of all taxes collected). Let's say we cut their tax rate in half - that would only save $69Bn! If they didn't take ANY bonuses and didn't pay ANY dividends with their unpaid taxes and plowed every single dollar into hiring people who make $30,000 a year, that would employ a grand total of 2.3M people - almost exactly the number of "overpaid" government employees the Conservatives want to lay off in order to fund these tax cuts for the top 1% - albeit hiring back the workers at drastically lower wages while letting vital government services go to hell.
What it would not do, is "create or save" any of the 9M jobs we have lost in this recession. It would not balance our budget and it would not make our nation stronger. US Corporations have done nothing but outsource America's future for decades and it is time for the bottom 99% of the income earners (those earning less than $250,000 a year) to wake up and smell the class warfare that is being waged against them. How can we even begin to entertain the idea of cutting government and cutting government spending when the sum total contribution of Big Business America represents a rounding error in our national budget?
That is why destroying Social Security is so high up on the "Conservative" (and what exactly are they conservative about?) agenda as those corporations have had their arms twisted to MATCH the 6.2% wage contributions paid in by their workers. Forget about saving them their $138Bn in taxes they pay on the profits they couldn't manage to hide in offshore shells - this is about them no longer having to match $445.5Bn in retirement savings their workers have been foolish enough to count on getting back and have been faithfully contributing to for the last 75 years.
There's a VERY simple way to fix Social Security TOMORROW if we want to. 3/4 of the income in this nation is earned by people making more than $160,000 a year. All we have to do is simply eliminate the cap on Social Security contributions and we will take in an additional $668Bn a year. Viola - a surplus of $919Bn!
Wait a minute - did I say $919Bn? Isn't that more than the additional taxes raised? Well sure it is but that's because we're NOT currently running a deficit in SS at all. Total outlays to 51M people in 2008 were $615Bn so I'm calling it $640Bn for last year, just so people don't say I'm underestimating (although you'd think Wikipedia would be more on the ball with updates). So, if you are fortunate enough to be making $206,000 instead of $106,000 a year, this change would affect you by a grand total of $6,200 but we would save both Social Security and Medicare for future generations. Wasn't that easy?
How about Housing?
I can fix that too. Instead of the Federal Reserve buying $2.5Tn worth of toxic assets from the banks to make them whole against homeowners and small business owners who had a rough time during the recession and instead of our Government spending Trillions more bailing out the Banks and the IBanks etc - why don't we help the actual homeowners?
I have a very simple plan that falls entirely under the auspices of the Treasury Department who are charged with administering lands acquired by the United States in addition to being responsible for supervising the Banks, managing debt and advising on monetary policy. My plan is this: In exchange for a $125,000 first lien against a property (up to 50% of current value) the Government will pay down $100,000 worth of that property's first mortgage. The government would own that percentage of the house and would benefit from any increased value when the property is ultimately sold.
On a 6% mortgage, this principle reduction would knock $600 a month off the interest payments on the home, effectively giving a $7,200 annual stimulus to any homeowner that participates. The $25,000 "surcharge" and the profit participation would discourage speculators and wealthy homeowners from taking advantage of the program, which can be accomplished by signing a single-page form over at the bank. The bank is happy because they get the same $100,000 we are giving them anyway for their toxic assets and we are improving their loan portfolio quality by improving the ability of the homeowners to pay.
Technically, this is not even taking on more government debt because we are picking up hard assets in exchange for what could easily be the greatest stimulus program in the history of the World.
- For every 1M homeowners that participate, $100Bn of cash will be pumped into the banking system, improving their balance sheets.
- For every 1M homeowners that participate, $125Bn worth of assets will be placed on the government's books as they invest back into United States Real Estate (also a nice vote of confidence in the long-term value).
- For every 1M homeowners that participate, $7.2Bn worth of additional capital will be placed directly back into consumers' hands EACH year.
Perhaps 25M homeowners choose to participate (25%). That would be $2.5Tn placed in the banks, 25M homes that are no longer in danger of foreclosure, $3.125Tn worth of assets acquired by our Government and $180Bn of cash flowing through the economy annually as 25M families are relieved of a substantial portion of their monthly mortgage payments. Where is the downside?
How About Jobs?
When Corporations refuse to make use of the asset we call the American Labor Force, it is up to our government to do so. We have/had the best-educated, best-skilled work-force in the World and letting it sit idle while it ages (not to mention hamstringing the education and training of the next generation) is unacceptable. Even worse, Corporations are shipping the jobs overseas and stifling potential competition by lobbying to prevent our Government from creating programs that will create American jobs that might compete with their cheap and shoddy foreign labor. That's right, the top 1% do not want the bottom 99% to find other work - they want to be the ONLY game in town - isn't that what Capitalism is really all about - monopolizing the markets and exercising pricing power?
What sectors are "chronically underemployed," where there simply are not enough jobs for the numbers of trained people looking for them? Wouldn't it make sense to make use of our resources where we have them in most abundance? There are currently 2.3 unemployed Teachers and Health Care Workers and Government Workers for each job opening. That sounds bad but it's about normal in any economy. Financial, Information and Business and Professional Services are all around 3-4 people per job - still not so bad. Wholesale and Retail Trade, Leisure and Hospitality and Non-Durable Manufacturing have 6-7 unemployed people waiting for each job opening so that, clearly, is starting to be a problem.
If you think that's bad, however, let's think about our worst-off citizens. There are 11.3 Transportation and Utility Workers trying to fill each job offered in that sector. There are 14.2 men and women hoping to fill each opening in Oil and Gas Extracting and Mining operations. 16 people are lined up for each opening in the manufacturing of Durable Goods and 34.8 people are available for each position that opens up in the Construction sector. Does this give you some idea of where we should be focusing our efforts?
Hopefully, my housing proposal will put some of those Construction workers back to work but clearly we need to do more. We already know the US has a vast, untapped wealth of coal, shale and natural gas that could decrease our need for foreign oil. We send $700Bn a year out of the country buying crude oil alone, which wrecks our balance of trade, devalues the dollar, increases the price of fuel and throws millions of Americans out of work - all things it would be nice to fix.
So I very much support the Pickens Plan to invest $1Tn in developing both our natural gas and wind power, which can help to put two of our most unemployed segments of the population back to work and will, according to Pickins' projections, reduce $300Bn (42%) of that annual trade imbalance owed to oil imports. That's $300Bn a year that stays in the country, spent on energy produced and maintained by Americans with the profits going to American corporations, who might even pay some taxes one day because it's a lot harder to hide US-generated profits in foreign shells (but we can probably trust GS et al to make a fortune figuring out how).
Of course we also need high-speed rail and local mass transit projects and you know we eventually have to fix our nations bridges and tunnels SO WHY NOT NOW? Tax cuts will not get them fixed, Big Business will not get them fixed. Should we wait to spend the money when there are plenty of jobs and when resource utilization is high and it stresses our economy and causes inflation or should we spend what we need to spend now, to invest in America and improve the infrastructure assets of our nation?
Dave Johnson has a "Local Jobs for America Plan" and I have another plan - a Davis Plan for employing our nation's 5M unemployed constructions workers which is not building new homes, which we don't need - but improving the homes we already have. One of our nation's largest unfunded liabilities is our aging $3Tn electrical grid that is badly in need of replacing. I very much doubt we have the political will to tackle that project until the transformers start blowing up in Republican voting districts so we'll shelve that for a year or two and focus on something we can accomplish now, which is REMOVING 20M homes a year from the US electrical grid.
How can we do that? Very, very simply by employing 2M workers and resources to install solar panels on every viable rooftop in the country. This plan is so simple it doesn't need bullet points. Solar companies can make a home energy independent for an average of $50,000. That includes all the labor and materials. We can target creating 400,000 5-man crews who complete one home a week and that's 20M homes off the grid in year one. The cost would, of course be $1Tn but let's treat it like a business and charge the homeowners 50% of their current utility bill so approximately $200 a month or $40Bn a year - plenty of money to pay back the $1Tn "loan" over 30 years.
Not only does this program decrease our need for foreign oil by 5% for each 20M homes we transform, but it takes the pressure off our failing grid, cleans the air, employs 2M Americans (not to mention all the support industries - especially if we make sure we ONLY buy American components) and saves the homeowners the same $40Bn they are paying out. With any luck, the program will spur the development of better and more efficient systems and by the time we get to the first 40M homes that are "easy" to power, we will have made enough improvements to power another 40M homes - taking 80% of the US homes off the energy grid in 5 years, saving $200Bn a year in energy costs for our homeowners and decreasing our imports of oil by 20% - another win, win, win for America!
Henry Morgenthau, Jr. was the Treasury Secretary of the United States from Jan 1934 through July 1945. He played a major role in designing and financing the original New Deal. Morgenthau believed in balanced budgets, stable currency, reduction of the national debt, and the need for more private investment. Morgenthau and Roosevelt put forth a "double budget"—that balanced a regular budget, and an “emergency” budget for agencies, like the Works Progress Administration (WPA), Public Works Administration (PWA) and Civilian Conservation Corps (CCC), that would be temporary until full recovery was at hand.
Morgenthau gave a speech to the Academy of Political Science at New York's Hotel Astor, in which he noted that the Depression had required deficit spending, but that the government needed to cut spending to revive the economy. In his speech, he said:
"We want to see private business expand. … We believe that one of the most important ways of achieving these ends at this time is to continue progress toward a balance of the federal budget."
When private business fails to expand, when the budgets cannot be balanced because 25% of the population is unable to make income tax contributions due to loss of jobs and homes - then a wise man knows when it is time to step in and let the Government fill the void. Not with more bailouts to the rich who, like Reagan's deficit "are big enough to care for themselves" but with bold programs that invest in the future of this country and utilize the skills and labor of this country and make America strong and independent.
Imagine if Roosevelt and Morganthau hadn't acted and we were still in the midst of a Japanese-style 20-year recession on December 7th, 1941 - when our Navy was ambushed at Pear Harbor. How many years would it have taken us to get back on our feet? How fast could we have restarted our manufacturing from scratch? Would we even have won the war? The strength of multi-national corporations is not the strength of America - they've already taken all our jobs overseas - how about we stop kissing their asses for the lousy $138Bn (less than 4% of spending) they contribute to the running of our nation and tell them what the New, New Deal is going to be?
Have a great weekend,
By Phil
Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)
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