Putting America Back to Work

by

Allen W. Smith, Ph.D.

It has been three years since the 2008 financial meltdown, and nearly 20 million Americans remain partially or fully unemployed.  To allow the high unemployment to continue, without major efforts to combat the problem, is a national disgrace. 

The current state of our economy is a manmade phenomenon that should never have been allowed to happen.  Now that it has happened, instead of trying to find a way to reverse the terrible trend, government leaders from both political parties seem to have deserted the American people, and they apparently have no intention of returning to serious work until after the 2012 election. 

The primary problem with our economy today is the lack of adequate demand for the products the economy is capable of producing.  The 2008 meltdown took a heavy toll on the assets of most Americans, and the high unemployment has depleted consumer income to the point that it is impossible for the economy to recover through consumer spending alone.  This is one of those crises where government intervention is absolutely necessary, because neither consumers, nor the private sector in general, can solve this problem by themselves.  

For decades, the infrastructure of our country has been neglected to such a degree that many highways, bridges, and power grids need to be upgraded or replaced.  Given that need, plus the fact that we have millions of construction workers in desperate need of employment, it should be a no-brainer for every American that we should employ the idle workers to rebuild the infrastructure. 

  Most economists are in agreement that, without a major increase in demand, the economy will remain stagnant for a very long time.  They also agree that the nation’s massive deficits and skyrocketing national debt preclude the borrowing of money to solve the economy’s problems.  We can put America back to work, while simultaneously rebuilding our infrastructure, but we must pay for the project in the form of higher taxes.  There is room for debate as to who should pay the higher taxes, with one approach being the implementation of a progressive “national unity tax” that would apply to all Americans, but not in equal proportions. 

The argument that the rich should pay higher taxes than the poor is not just an issue of fairness.  It is an issue of basic economics.  Tax increases on the poor take money that would otherwise have been spent on living expenses, thus reducing the amount of consumer spending.  On the other hand, a tax increase on high-income American’s will have little or no impact on consumer spending because they have enough money to maintain their standard of living despite the tax increase. 

A basic economic fallacy that has become an accepted part of the national dialogue over the past 30 years, is that the tax rate on the rich is a determinant of how many jobs they will create.  This is not true.  Neither a tax cut nor a tax increase on high-income Americans will have much, if any, effect on the number of jobs created.  The economy is demand driven, and it is the level of demand that determines how many jobs will be available.  Giving tax breaks to the rich will not create jobs, and raising taxes on the rich will not reduce employment.  The level of taxation of the rich has little or no effect on the number of jobs available.  However, tax increases or decreases on low-income Americans do have an impact on consumer demand and thus on the number of jobs. 

America is today facing the greatest economic crisis of the past 70 years, and we need honest and efficient government more than ever before.  Instead, many politicians have abandoned their constituents and their commitment to serve the best interests of the nation as a whole by signing pledges that they will not vote for any tax increase, of any kind, for any purpose.  By so doing, they have surrendered their authority to represent the common good of the people.  If this bizarre attempt to interfere with the American democratic process, by dictating tax policy, is successful, this movement will have put our national security, and the well being of American citizens, in great jeopardy.   

                        Copyright 2011 Allen W. Smith