Understanding the Economic "drivers" of America has led us to fifty years of a few positive experiences and a whole lot of politicized negatives. The President and Speaker both understand that over 57% of all voters were neither voters nor spenders in 1988, when most of the underlying bad policy began to drive down our economic principles and ability to heal ourselves through true supply and demand – free market principles.
The Bush/Pelosi package of tax rebates that is already awash in the political news hour is NOT an economic stimulus package, because it again applies remedies in places that do not stimulate re-growth.
Tax cuts will always be disproportional to the pain index and those that feel the pain the most. The Reagan theory is that tax cuts stimulus should be "trickle down" driven - and maintain the fairness concept that those that pay, should be rebated. When in truth, if tax collection was truly fairness driven, that logic might apply, but since tax policy is vastly skewed the logic is false. One can not credibly use such logic, without fairness across the board.
Yet, Nancy Pelosi and others have already jumped on this bandwagon because they have also allowed the non-sense notion that consumer spending drives the American economy to rule economic policy.
I don’t want to jump too hard on Ronald Reagan to those that were born after his presidency and have been driven to idolize him. His economic policy was actually that of David Stockman. It was called supply-side economics. The name implied that the policies to realign and accumulate wealth and investment would be realized through inertia within job and economic investment within America. What actually happened was the newly acquired and concentrated wealth was far more fluid and mobile; less controllable; and more greed influenced than idealistically intended. More investment dollars were exported to develop burgeoning and in some cases, third-World economic investment because you could simply get more bang for the buck, more return on investment in those underdeveloped economies; with less competition and less risk. This unbridled and uncontrolled policy, instead created a runaway competition to export industrial capacity to lower labor cost areas, for example. The patriotic zeal that was envisioned and skillfully communicated as only Reagan could do had been hijacked by personal and corporate zeal. The negative stigma of investing overseas first, rather than in America first was never checked post-Reagan and still undermines the true American economy.
So when I hear the phrase that America’s economy has become service based, I recognize this reality as a result of poor economic policy that still has not been reversed. This is also using economic terms to people who don’t want to understand economic principles as a cover for bad decision making in the past. Economic principles are not easily understood because they are not tangible; yet are as basic and painful as reconciling and balancing the family checkbook.
When I hear the new mantra that this is now a consumer spending based economy, I cringe for numerous reasons. First, consumers can not spend money they can not earn. And without jobs that provide more than bare necessities, disposable income does not provide the ability to spend. No amount of handout changes that truth.
This notion is purely a political and journalistic cover for poor policy of building economies world wide first and America last. Globalization is the next generation sham principle of that same failed policy. While we can not isolate from the World and its economy, we can not export our ability to be self-sustaining.
Within all of this foundation of principle, I hope to comment using the inconsistencies of political speak of both parties as headed by both Bush and Pelosi and explain why this notion of tax rebates is a new round of poor economic policy.
Stimulus as a means of Recovery
Stimulating consumer spending as an economic stimulus is pure hogwash. It has no real effect. Giving the average American a fifty dollar bill will not change anything. It, in fact, is an inflationary action and the inflationary impacts will far outstrip the true value of that $50 average rebate. Yet the direct cost would initially be $15 billion dollars and indirectly cost nearer seven times that amount.
It doesn't alter the continuous rise in costs - true inflation as opposed to inflation as measured by the revised, revised statistics of today. When we measured inflation in the 1970s, we truly measured inflation. I've kept an inflation barometer based upon the formulas we used to measure inflation before Reagan began to gerrymander the numbers for political gain, since he was unable to truly solve the problems of inflation and falling productivity within the US. The headlines of 1977 were prime interest rates of 17% and true inflation over 11%. By 1981, the numbers had fallen only slightly. Using the same formulas, the second quarter of 2007 would have yielded a true inflation rate of 9.3%; while the Congress and President only quoted a 2.3% cost of living rate for social security recipients. This was not by accident. In fact, it was a continuation of bad policy; reflected by gerrymandered numbers with intent to use social security recipients to help balance a staggering budget.
The measures of economic strength/weakness applied by most economists working within the banking industry include the “net cost” of money. Simply stated, this is the prime interest rate less the true inflation rate. This determines the true worth of investment. Do the comparisons to determine whether this is a good time to invest and then factor in the housing meltdowns that still have not been fully realized. Again, we are dealing with several factors of which only the tip of the iceberg is yet seen, on some.
1977-1988 were the root cause years of today’s dilemma; when after the failing of this country to pay for the Vietnam War, we drove up inflation and interest rates and sought a political solution instead of an economic one. We’ve never been able to face economic reality since – not even within the Clinton years when the budget was balanced by inordinate earnings of the technology bubble.
The net effect of this political policy was that we simply printed more money and priced not only our products, but the cost of building our products out of the world-wide competitive marketplace. Once we factor in the devastating monetary policy, we understand that gasoline that has a pain index to those using the dollar, has a pain index of $2 to those using the Euro and only one dollar within the producing states. This disproportionate pain again exacerbates the domestic economic dilemma. And no, it is not an option to convert the US system from the dollar to the Euro.
We also took away the critical key to economic correction - PERSONAL SAVINGS - by encouraging spending in tough times rather than encouraging savings as was accented in the 1880s to recover from the post Civil War Depression and again in the 1930s/1940s to recover from World War I and the poor political economic policy of the consumer based roaring twenties.