Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Tuesday, December 8, 2009

Double Dip Recession Possibiliy

There is some concern expressed in what I have been reading recently abut the possibility of a double dip recession

Conventional wisdom (left) is that stimulus spending is deeply inadequate, and (right) that any raising of taxes will put a sever damper on the economy.  In my view, the left has it right.  But what about taxes?  First off, States and municipalities are in trouble, some of it severe, and it's only going to get worse.  Job loses and depressed property values take a big bite out of governmental revenues.  My property taxes have gone down about 12 %, along with the assessed value of my home.  And, like many others, I accepted an incentive to retire a bit earlier than I had anticipated.  Since my home state does not tax either Social Security or pension income, they are losing quite a bit from me there, as well.  How these entities can recover without raising tax rates and cutting services is a mystery to me.

Meanwhile, the richest 1% in this country have been further enriched by $$$ many billions over the last decade, or so.  It is very hard for me to believe that taking taxes on the wealthy back to the levels current during the Clinton administration is going to do significant damage to the economy.  In fact, money redistributed into the hands of people in the lower economic strata will get spent on goods and services, to satisfy basic human needs.

All the tax avoidance talk since the Reagan administration rings very hollow.  This country had its greatest prosperity during the 50's and 60's when the top marginal tax rates were in the range of 70 to 90%.  Inheritance taxes also dropped, from a top rate of 70% to 50% in the 1981 tax bill.  Three decades of tax policies favoring the rich have brought us a depressed economy (and this is no accident - the parallel is to 1929.)

As it stands now, the threat of a double dip is serious and increasing.  The rich aren't going to bail us out, and Obama is too much in their thrall to put forth the level of stimulous spending that will make a real difference.

Here is my solution.  Raise taxes on the rich and those earning high incomes.  Redistribute that money to people who need it, and will spend it.  Increase Federal stimulus spending to an amount that will bring GDP growth up to a recovery level - something in the range of 10%.  Get that money into circulation quickly, and don't be in any hurry to end it.  Forget about the deficit.  There are times when it is important, but now is not one of them.

At a time when we need the bold leadership of the kind of president who welcomed the hatred of the rich and powerful, we have a quasi-Republican president, who is owned by big business and big finance.  God help us all.  It's a long way down.

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