04 September 2011

The Case of the Disappearing Money

If Republicans, conservatives and many Americans of any political stripe are to be believed, the single greatest and most urgent mystery in modern times is this: where is all the money disappearing to?! If we believe them, every dime you pay in taxes, every penny that goes into a government job or contract, every nickel paid to fund anything done by the government, simply vanishes. That's why, by their reasoning, taxes should be as low as possible: every dollar not paid in taxes goes to the economy, while every dollar paid to the government simply vanishes into thin air, never to be seen again.

OK, they admit, the money doesn't disappear, but it isn't used as efficiently by the big, bad ol' government as it could be used by the Glorious and Patriotic, Wonderful PRIVATE SECTOR! (Cue marching band and fireworks! Serve the apple pie!) And everyone - and I do mean almost everyone, including most Democrats in this country - buys into this, to the point that it is simply a given in our national dialogue. President Obama, for example, takes it as the gospel truth that tax cuts=more prosperity.

And as we saw just this past week, this Mystery of the Disappearing Money also applies to the costs of conforming to regulations. President Obama did what he always does these days and caved to Republicans by withdrawing his administration's plan to tighten smog regulations because it would 'cost' tens of billions of dollars at a time when the economy needs the money to create jobs. So he has implicitly accepted that money spent on these measures just turns to dust and blows away.

Just one small problem with this reasoning: it makes no sense whatsoever and is not supported by facts or reality. (Other than that, though, it's perfectly reasonable.) Let's look at the cost of conforming to regulations that improve air quality, for example. Let's say it is the worst-case scenario and it's tens of billions of dollars. Do those tens of billions of dollars simply go into a giant paper-shredder? No, they go into contracts with other companies to implement particulate- and pollution-reduction measures, and those contracts create new jobs. They go into the purchase of new equipment to reduce pollution and waste, again creating jobs and making the polluters more efficient to boot (which has long-term economic benefits of its own). And on the savings side, the effects of lower levels of smog redirect billions away from healthcare costs and into sectors where the same money can create more new jobs.

And what about all that 'wasteful' government spending? It's certainly true that governments do have a talent for inefficiency and waste, as all large organizations do; but it's by no means true that the government is always worse than the private sector, and in many cases it is considerably better. For example, Medicare actually delivers healthcare at a more efficient rate than do private insurers. And as we have just seen very recently, when you compare the performance of government-run foreign aid, reconstruction and military support services and infrastructure to such programs carried out by private contractors, turns out big, bad ol' Uncle Sam is far more cost-effective and efficient than the private sector, where not only costs are higher but corruption and waste are rampant.

And one must distinguish between government spending and government investment. The former is expenditure on a short-term need that while important to meet, may not lead to any positive return down the road. But government investment is money spent by the government to ensure long-term needs - ones that can not be met by the private sector - are met in order to support the economy and society of our country. Those investments normally have positive returns on investment, returns that can and should be measured and made public to set them apart from mere 'spending'. Take roads and other infrastructure projects. The private sector is simply never going to step up and say, 'hey, let's pay billions of dollars to improve roads, rebuild bridges and replace our rotting, dangerous sewage, drainage and water management systems in this country.' But without that investment, the private sector will lose more and more money over the coming years due to everything from supply chain disruptions caused by poor roads to closures caused by preventable flooding and water-supply interruptions. Addressing those issues will save billions and create a lot of jobs in the process, while delaying them does us no favors anyway: a repair that might take $5,000 today may cost 2-3 times that much if we wait too long.

But wouldn’t raising taxes to balance the budget and repair our embarrassingly-poor infrastructure just make the wealthiest Americans scared to invest? After all, we keep hearing that trillions of dollars in cash are sitting on the sidelines due to investor skittishness. Republicans point to this huge cache and claim that its owners are just chomping at the bit to invest it, but alas, with so many regulations and taxes, what’s a billionaire to do? What utter and complete hogwash. These claims do not bear up under even modest scrutiny. In fact, the existence of all that sidelined money is an argument in favor of taking the opposite approach favored by Republicans: the wealthiest 5% of Americans, the ones who are sitting on these trillions, have absolutely no motivation whatsoever to invest it in jobs, even if conditions were ideal, so why keep their taxes low and allow them to accumulate even more money just to see it sidelined, too? With such vast wealth concentrated into so few hands, those people no longer need to invest to secure their financial futures. At some point, it is simply safer to live on that accumulated wealth, especially when the economy is uncertain. In short, they have no motivation to create jobs and add value for the economy. But if we taxed those wealthiest Americans and invested that money in the economy by funding things like sorely-needed infrastructure improvements, we could force that money off the sidelines and push it into the hands of the lower 95%, who simply have no choice but to spend and invest it, since they have unmet needs and must still work hard and invest to secure their futures.

So, we want to create millions of new jobs and get this country moving again? Then let’s do what past Republican and Democratic presidents alike have known to be the sensible thing: return to a tax policy that discourages the accumulation of idle capital and that uses a high marginal personal tax rate to keep funds flowing through the system. Use those high marginal tax rates on the wealthiest to balance the budget, cut corporate taxes and rebuild this country. Then step back and watch our America get back to work.

No comments:

Post a Comment