"In 1933 Francis Townsend, a physician, began pushing his "Townsend Plan" to cure the depression. His idea was to give everyone over 60 years of age a Federal pension of $200 a month, provided he spent it."
Summary of the Townsend Plan, the forerunner of Social Security.
The money the person received needed to be spent within 30 days. That was a requirement.
Economies in recession have a "demand" problem.
Wealthy people who get additional money don't feel compelled to spend it; they have most of the things they need. Poor people--unemployed people, people with low-paying jobs, the struggling middle-class--can't spend money because they don't have it. A key in getting money circulating from one American to the other is to put money into the hands of people who will spend it, not hoard it or bid up asset prices.
Government programs to stimulate the economy, most recently the 2017 Trump Tax Cut bill, reduced marginal rates and cut corporate taxes. It had a powerful effect of putting more money in the pockets of people in the highest tax brackets, and it gave corporations more money, which was conspicuously used to buy back stock. Wealthy individuals bought investment assets, too, and that added to the buy-pressure on the stock market. The rich got richer.
There was trickle down, too, but George W. Bush's notion of an "ownership society" where workers were enriched both as employees getting a paycheck and as stockholders in their 401k accounts, had a fatal flaw. "Owners" are people rich enough to own investments. The bottom 50% of Americans have essentially no "ownership" assets. They have bills to pay and need all the wage income they earn to live. So the "ownership" piece of the pie went to the top 10% of earners, and especially the top 1%, and most conspicuously to the top 0.0001% of billionaires who became multi-billionaires.
Then came COVID.
Biden has a one-two punch to address a problem of income distribution. The $1.9 trillion COVID relief bill puts dollars directly into the hands of people, especially families with children since most of the money goes to people. Poor people will use the money to buy stuff. Then Biden adds a $3-trillion infrastructure bill package. There is something special about infrastructure spending. When done well on needed projects, it is an investment. A bridge, road, power grid, pipeline, port improvement, rail line, or airport runway makes commerce easier and more efficient. It therefore pays for itself. They are tools for commerce. Theoretically, these are bipartisan. Democrats like jobs bills for union workers and like spending money on people; Republicans like things that help businesses do business.
Not all infrastructure is bipartisan. More controversial are energy infrastructure projects that compete with other incumbent energy sources--wind and solar for example. Energy sources have a constituency, oil and coal are Republican energy; wind and solar are "green" and Democratic. Education infrastructure is discounted by Republicans as not being infrastructure at all.
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| Port of Coos Bay |
While the political process will argue about project merit, there is one over-arching political asset to Biden's infrastructure bill: The money gets spent here in the USA. Oregon readers may be happy to hear there is money in the bill to expand and dredge the Port of Coos Bay--but maybe not, if the port become better suited to exporting liquified natural gas. There are always controversies over projects, supporters and objectors, but the politics are generally good when American workers use their paycheck to buy stuff in America.
Republican lawmakers have re-discovered thrift, after having forgotten it during Trump's presidency. [Again: I don't mind there being a thrift-and-prudent party, as I have written in the past. I think Modern Monetary Theory is a pleasant delusion. Eventually debt catches up to people. I wish the GOP were disciplined and consistent, but they aren't. I wish Democrats were more fiscally cautious, but they aren't. I cite this for the record. I think MMT will bring America to grief.] Republican lawmakers are complaining that the spending bill has a tax proposal paired with it. How outrageous, to pay for what you spend, they complain. I think raising taxes to pay for spending is exactly what is necessary. Republicans don't want to do it at all. Democrats say the taxes will catch up in ten years. People like spending. Nobody is thrilled with taxes.
Biden has a tax plan. It increases the corporate income tax rate back to 28%, the midrange between the 35% rate prior to the Trump cut, which reduced it to 21%. Economies are leaky. Some of that increased tax will be paid by the foreign owners of American stocks. Some of the spending will benefit--indirectly but eventually--foreign suppliers of copper, steel, construction equipment, etc. The primary beneficiary is the American economy because it is an infrastructure bill.
We are taxing Americans so we can spend money right here in America to make America a better, more productive place. It is a circle.
3 comments:
Competing monetary ideas and theories have consequences. The main problem is the push and pull of changing administrations with their policies and priorities make for constant tinkering with initial programs. The ACA is an example of tinkering and consequences. Opting in, in some states; and, out in other states with Medicaid is an example. As is pulling the fee (tax) for non-participation in the program. Two competing ideas to take care of the nations healthcare needs has left gaping holes in coverage and participation. Tax reduction for the wealthiest accelerated the income disparity and made it worse. The idea that people or corporations with lots of money would use new money from tax relief on capital projects, increases in wages and hiring more people is an illusion. Currently it appears that Republican policies, when their out of the majority are to be fiscal conservatives, but in power, Republicans play sugar daddies to the donor class. With the Democratic administrations of Clinton and Obama, the focus turned to "getting our fiscal house in order." But not this time, Biden is testing the MMT and going big on programs that benefit a majority of the population. In theory, Biden is betting a broader and more financially secure population will grow the GDP as was the case with the World War II and Eisenhower spending programs.
All true, however the investment model depends on both the amount of money and the time given for the return to be realized. If the investment is insufficient to get get a return in a reasonable time frame it can falter politically. The interstate highway system is an example. Its value to the economy took more than a decade to contribute to the boom years of the 50s and 60s. Also, it was a popular bipartisan project.
Is $2T enough? Will the debt incurred be offset by overall economic gains in the short term? Some Progressives argue it's not enough, particularly given the challenge of climate change. Republicans have had the opportunity to put forward their own plan since 2010, but didn't which makes one wonder why not?
They are completely opposed to this plan, and will no doubt do all they can to sabotage it despite its overall popularity in the electorate.
Personally, I would have like to see a universal healthcare initiative put forward parallel to this spending plan. A plan funded by corporate tax increases makes more sense to me politically. Wouldn't that benefit more working class voters than a possibility of a job repairing a bridge?
As Joe Biden likes to say, “Politics is the art of the possible.” And it is only possible to do one thing at a time, especially with a 6 vote majority in the house and a 50/50 senate. So perhaps universal health care is not the battle to wage now. Unfortunately, the second most powerful person in the country today is Joe Manchin; the 3rd is Kyrsten Sinema. This is the world we live in. I can think of no one better equipped to navigate this world than Joe Biden and Nancy Pelosi.
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