Posts tagged ‘Fiscal Policy’

05/30/2012

Jobs: Republicans Deserve No Credit

It always amusing when Republicans like Wisconsin Gov. Walker take credit for job increases, as if they personally interviewed the unemployed, one by one, and told them they were hired. While Democrats have historically helped those out of work by creating public sector jobs, Republicans don’t even budget enough money to meet the current government payroll, and they certainly are not entitled to take credit for any new government employment.

As to the private sector, governments can only indirectly stimulate economic activity through Fiscal Policies, which increase government spending. Since Republicans again routinely vote against job stimulus bills, they cannot legitimately take credit for any employment the government may trigger in the private sector.

When politicians like Republican Gov. Perry claim they added 1 million new jobs in Texas, they try to take credit for something they did not do, since they added no public sector jobs, and stimulated no private employment, through state budgeting.

While Gov. Romney argued jobs are established in the private sector, and not in Washington, he repeatedly failed to explain his theory that only those who understand “how the economy works” can create employment. The truth is merely understanding “how the economy works” is not a formula for job creation. Slogans like: “to create jobs, you have to have had one,” sound great, but insult our intelligence, since they explain nothing.

What is funny is when politicians like Romney, Perry, Huntsman, Bachmann, Ron Paul, Gingrich, and all the others, repeat the standard Republican talking points that jobs can be created by eliminating regulation, lowering taxes, and repealing Health Care.

Just how would the elimination of regulations create jobs? Have you ever thought about it? The right wing repeatedly makes this argument, but nobody pauses to think about what they are saying? If we repealed food safety rules made by the Food and Drug Administration, our health would be endangered for sure, but how would that create jobs, except perhaps in emergency rooms? If we eliminated air safety rules promulgated by the Federal Aviation Administration, we may have more plane crashes, but explain the job creation theory, because the connection is not at all obvious.

Lowering taxes to create jobs is another interesting theory. President George W. Bush tried it in a big way, as he dramatically cut taxes for the wealthy, and what happened? 4 million lost their jobs in 2008, in the six months before President Obama took office. Bush’s cuts sounded good to the wealthy, but if the policy had worked for all of us, the rich would have used their new wealth to invest in job creation, but they obviously did not do that.

How would the repeal of the new Health Care law increase jobs? If the nation will be adding health coverage for 40 million people, one need not be a rocket scientist to understand that a countless number of jobs will necessarily be created to take care of them. The right wing theory that repealing the law would somehow add jobs is totally baseless and illogical.

While Republicans pay lip service to unemployment, saying it is a tragedy that affects millions, they avoid direct solutions like public works hiring projects, and oppose government stimulus plans. Reducing taxes for the rich, eliminating unspecific regulations, and making other reforms not even remotely related to jobs, is no answer. The very least the right wingers and Republicans could do is avoid taking credit for jobs, since they certainly have no right to claim credit for them.

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10/26/2011

Greece Limited By Euro Monetary Union

Although the U.S. Congress controls Fiscal Policy under an unlimited Constitutional power to tax and spend, and Monetary Policy through the Federal Reserve Bank and the ability to “coin money,” European Union states, such as Greece, who elected by treaty to adopt the Euro currency, are no longer able to use a national Monetary Policy to print money, or a Fiscal Policy to spend in excess of limits set by the European Central Bank.

European unification has been a work in progress since the 1950s when certain European states created a Common Market for the purpose of trading, under a system that allowed them to maintain their control of over national economics. A Customs Union was added in 1968 to abolish tariffs between the member states, and to establish a common tariff as against goods from the outside.

The existence of several currencies and a desire for a easier flow of capital led to a Monetary Union, which created a European Central Bank in Frankfurt, abolished German Marks, French Francs, and other currencies, and replaced them with the Euro in 2002, by making it the exclusive legal tender in Euro Zone states.

The problem with the Monetary Union is the lack of a Political Union to oversee it. Unlike the U.S., where all 50 states obey Washington DC on national matters, the EU is a collection of independent countries that happen to have a Central Bank. The EU Parliament cannot pass national legislation, like the Congress; they can only follow existing treaties, or propose new ones.

It is doubtful the recent European Monetary Union financial crisis will cause the independent countries of the EU to form one Political Union. It is more likely to have the opposite effect.

The problem is national governments like Greece already gave up aspects of national control under prior EU Treaties. When the Monetary Union was made, the EU Framers required the various national governments to coordinate their economies. National Debt, for example, was not to exceed 60% of GDP. Countries that previously used Monetary Policy were no longer able to do so, since these powers were transferred by treaty to the Central Bank.

National governments that previously spent their way out of recession, now had their Fiscal Policies controlled by the EU Central Bank, which imposed spending caps. Their Stability and Growth Pact (1997) required states to pursue balanced budgetary policies, and imposed sanctions against those that failed to adjust.

The European Central Bank has the authority under treaty law to restrict the democratic wishes of the Greek people and to operate without regard to political pressures. The risk is a renunciation of the EU Treaty by Greece, which may trigger others to follow, in a manner like South Carolina’s secession from the U.S. in 1861.

While the EU is not going to allow member states to default, the question is whether the Greeks will allow the Central Bank to reduce their jobs and pensions without a secessionist revolt, which Greeks may feel is their only option, since the Bank now controls their national Monetary and Fiscal policies, under the EU Treaty.

05/13/2011

Unemployment: Republicans No Help

The Republican-controlled Florida House and Senate voted to increase unemployment by cutting 4,492 state jobs. They also plan to spend 700 million less than last year. They did exactly the opposite of what most economists would do, and of course their rookie Tea Party Gov. Scott, approved of their misguided policies.

Florida Republicans should certainly know we are not out of the Great Recession, which started in 2008, when George Bush was President. What is unclear is whether they have any clue as to how to get out of it, or worse yet, whether they care. While no one expects all of them to have a college degree in economics, they should at least have studied the subject, before taking office.

When a local economy is stagnant, as ours is, state government can apply Keynesian economics, to stop high unemployment from becoming chronic. Florida could have created employment by spending more, not less. They could have used fiscal policy to grow the economy out of the recession, by creating jobs.

It is almost like the right hand does not know what the left hand is doing. While President Obama and the federal government are doing the right thing by spending for the purpose of stimulating the economy, the Florida Republicans are doing the wrong thing by budgeting less and causing more unemployment in a recession.

Unemployment not only hurts the unemployed, it harms the entire local economy. When unemployment remains high, buying and selling declines. One ripple effect is a decrease in state sales taxes. If the Republicans had increased spending, through fiscal policy, jobs would have increased. This in turn would have stimulated buying and selling, and would have increased sales tax revenues.

While the Republicans gave away 60 million in tax cuts to businesses, and forfeited another 37 million, by raising corporate income tax exemptions, from $5,000 to $25,000, there is no guarantee any of this will increase investment, or generate jobs. If wealthy taxpayers remain timid on new investments, and instead save money, there will be no resulting increase in employment.

There would have been no better public works investment project, to cure the ill effects of the recession, than the high-speed rail plan our governor foolishly rejected. Florida could have used federal dollars to construct a railroad, and could have stimulated all kinds of jobs. It’s sad, but Scott just doesn’t understand economics.

Public works projects are a much more direct and certain way of stimulating employment. During the Great Depression that started in 1929, the government provided public sector employment that stimulated the economy. Unemployment dropped from 23.6% (1932), to 16.9% (1936), and down to 14.6% (1940), before WWII itself finally brought about a full employment economy.

Next year, when the Republican Party is in Tampa for their National Convention, I am sure they will complain about Obama. When they say the President did not create enough jobs, I hope the St. Petersburg Times will remember to ask why they voted to directly eliminate state jobs, spent millions less during the Great Recession, and thwarted Obama’s efforts to turn things around.