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July 15, 2003

Why "Tax Cut Stimulus" Fails

You know Bush's tax cut solution for the economy is useless when the apostles of Reagan's tax cuts declare it useless.

Read this article by Paul Craig Roberts, one of the original Reagan appointees in charge of tax policy -- he was Assistant Secretary of the Treasury. What Roberts argues is that the tax cuts are pushing growth, just not in the US:

I think that the jobless recovery is an illusion and that the U.S. economy is creating jobs - but not for Americans. Those 2.5 million manufacturing jobs have not been lost. They have been moved offshore and given to foreigners who work for less money. The service economy was supposed to take the place of the lost manufacturing economy. Alas, those jobs, too, are being created for foreigners. It turns out it's even easier to move service jobs abroad...

The growth in the U.S. economy thus brings about a growth in foreign employment, not in U.S. employment. If this analysis is correct, U.S. job-seekers no longer will be able to tell the difference between recovery and recession...

The Fed's low interest rates and Bush's tax cuts cannot bridge the difference between wages and salaries in the United States versus those in China and India.

The bottom line is that randomly handing tax checks to consumers won't help the economy if it just swells the trade deficit.

The real answer is simple. Rather than target stimulus spending randomly, pick spending that will translate directly into jobs in the US. Regular consumers may not target their spending, but the government can.

Prime candidates for targetted spending are public works such as mass transit or other infrastructure and health care-- two areas that translate most directly into US jobs. Such micro-targetting of government spending is the only way we are going to get serious job growth.

Otherwise, we are just generously helping boost other countrys' economies on the backs of debt left to our grandchildren.

Posted by Nathan at July 15, 2003 08:27 AM