Sunday, July 24, 2011

Right and wrong approaches to fixing the economy?

I think I came up with a conclusive, unassailable, argument in terms of "What do we do now to fix the economy". That's a fairly arrogant thing to say, especially when it concerns something I already had an opinion on, but here goes:

There are two arguments concerning how we go from here. One is "Shrink the government, hand out more money to the rich."

The other is "Ignore taxes, perhaps even raise them on those who can afford to pay (eg the rich), and increase government spending."

It's actually fairly easy to pick between the two. No, really!

The issue is we have to determine which of these addresses an actual problem.

The first proposed solution is proposed by people who believe that companies are unable to invest money in creating jobs because they don't raise the money to do so. By cutting the taxes of the very rich, they'll have enough money to invest in their businesses, increasing the number of jobs.

The second proposed solution is proposed by people who believe that companies don't invest money in creating jobs because there's businesses don't see enough demand to justify increasing production capacity. Directly create jobs (by increased government spending), and you'll increase demand, resulting in businesses creating jobs to handle the extra capacity they now need.

(I happen to disagree with the basis of the first argument as I've said before - high taxes actually encourage people to leave money in their businesses and invest in them, given the way the tax system is structured, but let's ignore that for a moment and "agree to disagree".)

So which is it? Are major corporations, etc, these days having difficulties raising cash, generally making losses and finding it hard to raise money through the stock market, banks, or anything else; or are they making decent profits, and handing that money out to their shareholders through increased dividends and share buy-backs?

Well, it's pretty much the latter.

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