When people have money to spend and they spend it, economy grows

One thing on which all rep- utable economists agree is that we are a consumer-driven economy. If true, our dismal economic climate will improve only with an increase in consumer spending. Unfortunately, we currently find ourselves in a Catch-22 situation; the economy won’t improve until people start spending, but with an unemployment rate of 9.1 percent (some say closer to 15 percent) accompanied by stagnant or decreasing household income, most people don’t have the money to spend.

It seems obvious that the best approach to rejuvenate our consumer-driven economy would be to focus on actions that will put money in the hands of those most likely to spend it, the poor and the middle class. The two most obvious ways to do that are to create jobs and reduce taxes. Many corporations are enjoying record profits and according to the Wall Street Journal and CNBC, have more cash on hand than at any time on record. Even so, they are understandably not adding jobs because the level of demand for the companies’ goods or services doesn’t justify hiring more employees.

The employment situation most closely resembling our current one was during the Great Depression. The solution then proved to be massive government spending. This took two forms, FDR’s New Deal and World War II; both were financed by government borrowing and resulted in putting millions back to work at the cost of incurring a then record level of federal debt. While the current government stimulus has helped create some jobs, many economists believe that the stimulus spending to date has been too little and too slowly spent. A substantial government increase in spending on infrastructure would offer two benefits, rebuilding our crumbling roads, bridges, buildings, pipelines and electrical grid as well as financing new jobs that would provide a taxable income for many now unemployed.

As a means to help finance stimulus expenses and tax breaks for those most likely to spend the extra money, we must eliminate the 2001-2003 tax cuts for those in the highest income brackets, the “job-creators” as some call them. After nearly 10 years of tax cuts for those “job creators,” they have not created enough jobs to even come close to replacing the ones lost. In 2001, the first year of President Bush’s tax cuts, our unemployment rate was 4.7 percent. Today it is almost double at 9.1 percent. Eliminating those tax breaks for the highest earners increases their tax liability only for taxable income greater than $174,400 and only by 3 percent to 3.5 percent. This would return their tax rate to the levels of the late 1990s, arguably one the best of economic times (read “low unemployment”) since the late 1940s and the 1950s.

Those who see our current indebtedness as unprecedented would do well to look back to the end of WW II when our debt to Gross Domestic Product ratio was actually higher than it is now. While our burgeoning debt should be a concern to all, our startlingly, persistently high level of unemployment warrants an even greater level of concern.

Robert F. Mollic, Liberty Township