Might you just consider that changing policies from insane to rational by dumping a marxist ideologue might have a salutary effect, rather than assuming that people opposing wrongheaded and destructive programs are two year olds in need of a long bit of contemplation in in the corner, and that giving into these two year olds and appeasing them might work?
Obama is a closet Republican. He has given us the lowest tax rates in the past 50 years. His economic team is made of free marketeers, from Geithner to Summers, i.e., people who believe that government should get out of Wall Street's way so that they can innovate.
Here is the real problem.
Supply side policies made sense in the early 80s. After 40 years of high-tax New-Deal-Liberalism, there was reason to believe that lower taxes and fewer regulations would lead not only to efficiency gains, but that it would free up capital for investment. Secondly, in the 80s we didn't have to worry about consumer demand because Americans still had high paying jobs, benefits, and generous entitlements. Therefore reforming the tax and regulatory system made sense.
The problem now is entirely different. We've had 30 years of tax cuts and deregulation. Taxes are at their lowest levels in over 50 years. Whatever advantages gained by supply side policies have been fully absorbed into the incentive structure.
Now, capital is sitting on more surplus than at any time in anyone's lifetime. The problem isn't that business lacks sufficient liquidity to invest. The problem is that they lack consumers, i.e., they have no incentive to invest. Business has spent the last 30 years seeking cheap labor - this meant that they got rid of high paying American jobs/benefits for 3rd world sweatshop labor. This is why everything is now made in human-rights-abusing dictator-controlled countries with oppressed workforces who make pennies a day. This flight to cheap labor has resulted in epic profits for American capital - but there is catch: when we got rid of high paying American jobs, we lost the necessary wage base to drive consumption. We tried to solve this problem by expanding the American credit system. Starting with Reagan, American consumption was sustained by debt (-we needed to do something in order to make up for decreased wages and disappearing benefits, so we sent people 3 credit card offers a week). It got so bad, that we had to turn our homes - the last asset left with any value - into ATMs. Now, we have nothing left. Consumers cannot borrow another penny. The era of making up for the failed Reagan trickle down with credit cards is over. This means there is zero demand - and there is no way to fix it by expanded borrowing. We are finally out of bullets. Business will not add one new job until the middle class has enough money (or credit) to consume. Giving business more tax cuts and fewer regulations will not fix consumer demand - it will not put money into the pockets of a foreclosed middle class. It will not make up for diminished wages and disappearing entitlements. Unlike the 80s, we now need very powerful, and very targeted demand centered policies. (Please recall WWII & the early postwar years when
government spending on war manufacturing and infrastructure put an entire nation back to work. We need something that big to prime the pump or we will have a lost decade, or worse)
You are applying supply side medicine to a demand problem.
Do you know where the Bush Tax cuts went? Answer: not American jobs. Bush had the worst job creation of any American president in American history, yet American corporations made historic profits. Don't take my word for it - do the research. The Bush tax cuts resulted in a dangerously large surplus of capital at the top. This capital got stuck on top because there was not enough consumer demand to warrant investment in the real economy. So what happened? Where did the Bush tax cuts go for a growth vehicle? Answer: Wall Street invented the largest derivative ponzi scheme in history. They invented layer upon layer of bogus securities, swaps, and derivatives in order to satisfy the surplus capital looking for high returns. The result was one of the largest financial meltdowns in history.
The Supply Side policies that worked so well in the 80s suffered the same fate as the Keynesian policies of the postwar years: they were over applied by a once-vital political movement that had run its course. You cannot fix supply problems with Keynesean stimulus anymore than you can fix demand problems with tax cuts for the wealthy. In fact, applying either of these policies at the wrong time can have disastrous effects.
We are living in that grave.
The trick is not figuring out how to give more money (tax cuts) to the wealthy so they we will invest in jobs; rather, the trick is figuring out how to repair middle class demand so that capital
has an incentive to invest in jobs. America has spent 30 years subsidizing and bailing out corporations - 30 years of state sponsored welfare which lead to criminal risk taking. Calling for even more help to the suppliers, whose pets have better health care than the poor, is going to be a tough sell, especially because we are suffering from the weakest demand since Hoover. This recession will not end until America figures out how to re-capitalize the middle class, which is literally too big to fail. Meaning: without consumption, without well paid, financially secure consumers who can consume without the need for credit gimmicks, the economy will be in a permanent state of crisis. The Reagan Revolution took care of the supply side. Indeed, business has more capital than ever. Now, after 30 years of neglect, we have to finally re-focus on demand. Obama is not the man for the job. The Left needs a tough ruthless bastard like FDR or LBJ. Short of that kind of fighter, I'd rather see a Republican president (preferably Ron Paul) - because at least a Republican will be allowed to pass some policies.
my 2 cents, respectfully
