Strangled logic

When I get into discussions about the economy with my conservative friends, they consistently tout the benefits of tax cuts to stimulate jobs and spending.  But they are consistently opposed to increases in the minimum wage as costing jobs.  Some go so far as to oppose the very concept of a minimum wage.

But here’s where I find their logic faulty.  We know that consumer spending (the demand side of the economic equation) accounts for a large part of the US economy.  And it is the demand side that is in trouble.  Of course, the credit crunch is a factor, but it doesn’t fully explain the current crisis.   Individual consumers have stopped purchasing.

Demand for goods and services is what creates jobs.  When demand goes down, layoffs result. The reduced demand over the past months is largely responsible for the layoffs we’re seeing.

The last administration used tax cuts and tax rebates as ways to try to stimulate the economy, and they do have a short term effect on spending.  However, the facts demonstrate that those cuts and rebates did little to create jobs.  But over the course of their tenure, overall job growth was anemic at best, rarely enough to cover those new workers entering the economy.  Additionally, the jobs that were created weren’t generally good paying jobs.  Indeed, the average wage for most Americans didn’t even cover the cost of inflation, leaving consumers less able to consume.  And as the economy has constricted over the past year, reduced demand has led to increasing layoffs and business failures.  Unemployment rates are higher now than in recent memory.

So, I ask my conservative friends, just what did all those tax cuts really accomplish?  Especially when the tax cuts were financed by deficit spending.  The people at the top got the benefits while our kids and grandkids got the bill.  The rest of us kept tightening our belts, trying to figure out how to afford the increased costs of medical care, education, food, energy, etc.  And now, we’re unable to do much more belt-tightening, even with the significant reductions in energy costs, which themselves reflected the reduced demand.

If consumer spending is the fuel for the economy, doesn’t it stand to reason that the more money people have, the more they can and will spend?  How it is that money in the hands of the wealthy is good, but money in the hands of the middle class isn’t?  How do tax cuts that provide capital for investment and job creation help counter reduced demand and the accompanying layoffs?  People who don’t have jobs can’t contribute to increasing demand.

It seems to me that the last eight years call into question the conventional wisdom about the benefits of tax cuts.  Yet the Republicans are arguing that the Bush tax cuts should be made permanent.  What this economy needs, and needs desperately, is job creation.  Jobs get money into the hands of consumers where it can be spent, thus creating demand and subsequent additional jobs.  To be sure, many Americans who have been spending beyond their means will use part of that money to pay down and pay off credit card balances, obtain long-delayed medical care and the like.  We know that the previous rebate checks went largely to pay bills during a time when energy costs were at their peak.

We have been lured into thinking that lower taxes are the solution, that taxes are inherently evil.  We have swallowed the line that we have the highest standard of living in the world.  Yes, we may possess more goodies than those in other countries.  But our medical care, our education, and our infrastructure — things that most people in other industrialized nations demand from their government as part of the social compact — lag behind.  We spend twice as much per person on medical care with poorer outcomes.  Our schools are failing in their social responsibility to develop an educated citizenry that can compete successfully in a global economy.  We fail to recognize the linkages between lack of education, poverty and crime and so we incarcerate a higher percentage of our population than any other country in the world.  We fail to recognize the costs to society and to the environment of crumbling roads, an electric grid that is vulnerable to failure.

And now the Republican leadership wants to continue with the same tax cuts that failed us before, choosing instead to criticize individual small parts of the proposed stimulus package rather than to identify other more worthy projects.  The party would be well advised to listen to those voices who explain their recent electoral failures as a failure of ideas.  Simply opposing for the sake of opposing is unlikely to bring them in from the cold.  Rather it will continue to cost them elections.  I was stunned at Ken Blackwell, formerly Ohio Secretary of State and current candidate for the RNC chair, say that he opposed the stimulus package because it would create jobs and thus score political points for the Democrats.  That sort of thinking is simply un-American and must be rejected.  Instead, the Republicans should be scrambling to figure out how to create more jobs than the ideas proposed by the Democrats.