I thought the State of the Union was spot on. Investing in the future: in research, in infrastructure, in our kids, in alternative energy, in modernizing infrastructure. Voting rights. Granting gun safety measures 92% of us favor an up-or-down vote. Raising the minimum wage to $9 by 2015 from it’s current $7.25. (This latter would, after allowing for inflation, put it back to where it was in 1981, when Ronald Reagan began tilting the balance of American prosperity ever more steeply in favor of the wealthiest of the wealthy. Watch Nick Hanauer’s six minutes again if you’ve forgotten how it’s consumers, not the ultra-rich, who are the job creators.)
Predictably — though that doesn’t make me wrong — I thought Marco Rubio’s response was awful.
He said: “Presidents in both parties – from John F. Kennedy to Ronald Reagan – have known that our free enterprise economy is the source of our middle class prosperity. But President Obama? He believes it’s the cause of our problems.” What a ridiculous belief to ascribe to the President. Either Rubio knows better — which is just awful — or he doesn’t — which is nearly as bad.
He said: “The idea that more taxes and more government spending is the best way to help hardworking middle class taxpayers – that’s an old idea that’s failed every time it’s been tried.” Really? President Clinton did a good bit of this — against unanimous Republican opposition and predictions of disaster — and we created 23 million new jobs and watched virtually everyone prosper, from poorest to richest.
He speaks of “the President’s obsession with raising taxes.” Actually, the President’s obsession, if he has one, is for “a balanced approach.” And the balance he seeks would include tax reform that cuts the corporate tax rate. He would put personal income tax rates for income above $250,000 back to more or less where they were under Clinton, and far, far lower than under Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter, during which time the middle class did quite well.
“Raising taxes won’t create private sector jobs,” he states flatly. Well, it sure did in World War II, now didn’t it? Rosie the Riveter wasn’t working for Uncle Sam, she was working for General Motors. And the tax rate on the richest was 90%, where it stayed for 15 years after the war until Kennedy lowered it to 70%. Not that anyone is proposing tax rates remotely that high. But if we did raise tax revenue and let contracts not for warplanes but for windmills, not for destroyers but for bridge repair, not for the Manhattan project but for alternative-energy research, not for the Marshall Plan but for a similar plan to help rebuild America — why would that not create jobs?
Senator Rubio seems sincere . . . and wildly under-qualified.
BUT BORROWING MORE NOW — REALLY?
Paul deLespinasse: “You say interest rates are so low we would be nuts not to borrow to put people to work modernizing our infrastructure and making the country more efficient and competitive. Yes, of course. But what happens when interest rates go up, possibly way up? I know it takes time for U.S. debt to roll over, but won’t interest costs for the accumulated debt then move toward becoming overwhelming? It seems to me that Paul Krugman, who has been pushing this idea, has not discussed this aspect of the problem. This is not to say it should not be done, but it should be done with a clear understanding of the possible downside.”
☞ Great question. One way to look at it is to ask this question: Will we have an easier time managing our already giant debt if our infrastructure is crumbling . . . or managing an even slightly larger debt if we have a modern, efficient infrastructure? Which economy is likely to generate more tax revenue long-term? Which is likely to inspire more investor confidence?
Another way to look at is: Will austerity and non-investment in our future really lower the deficit? Or will it mean (at best) more of the same kind of economy we have now, with lots of safety-net expenditures but less tax revenue than we’d raise in a robust economy?
A third way to look at it: What will be the cost of repairing bridges after they’ve collapsed versus repairing them now? Ten times as much? A hundred times as much? What will be the cost of dealing for 70 years with kids whose intellect has been impaired because we failed to de-lead their homes, or because we failed to provide pre-school education and modern classrooms . . . versus the cost of doing that work now? Ten times as much? A hundred times as much? Isn’t it cheaper to put idle people to work doing that now so more of those kids become productive taxpayers rather than wards of the state?
And note, as always, that scary as half-trillion-dollar deficits sound, if we just ran them every year for the next 50, in an environment where our economy were growing just 2.5% in real terms but also 2.5% with inflation, our National Debt would gradually but dramatically shrink as a proportion of GDP. From roughly 100% of GDP now to roughly 25%. No need to “balance” the budget at all — especially because the way Uncle Sam budgets, we don’t capitalize investments. Bridges that cost $1 billion to build are not amortized over decades, as a business would amortize a power plant; they are “expensed” all in the year the cash goes out the door.
This is what we did after World War II, when the National Debt peaked at 121% of GDP . . . but gradually shrank to just 30% of GDP until Ronald Reagan put a halt to that and started it climbing back up again to finance a military build up and tax cuts for the rich with borrowed money.
Finally, brush aside the financial part for a minute and just consider the really big picture:
Work that really, really needs doing . . .
People who really, really need work . . .
Seems as though there’s a fit there.
PS – MARCO RUBIO AGAIN
A few hours before giving his State of the Union rebuttal, Senator Rubio joined 21 other Republicans –all men — who voted against the Violence Against Women Act. All the Democratic senators, and all the other Republicans (and all the women, of both parties, not that anyone should defer to their judgment on such a matter), voted for it, so it passed overwhelmingly. But good for Senator Rubio for standing firm on what he believes.
Quote of the Day
That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
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