Sunday, January 20, 2008

Here Comes the Mindless Tax Cut v. Spending Debate

It has become clear to Congress and the Whitehouse that an economic stimulus package is needed. Now, the ridiculous debate over tax cuts v. spending has begun.

Republicans say that spending will break the budget. Democrats say tax cuts will break the budget. Guys … Get over it. The math is simple. Whether you increase spending by $150 billion or decrease taxes by $150 billion is irrelevant. In one case outlays go up and in the other revenues go down. The National Debt will be increased by $150 billion either way. The economy will see an influx of $150 billion either way.

The real issue is where to put the money. Do we give it to the investment class? Do we spend it on infrastructure projects?

The bubble showed what happens when the demand for equity exceeds the supply. The bridge collapse in Minneapolis showed what happens when we ignore our infrastructure for decades at a time.

The Dow Jones is fluctuating on investment strategies, rather than the value of equity. So, giving money to the investment class will only lead to more overpriced stock, causing another bubble. Any tax cut should be targeted to the middle and lower classes, not the investment class. Spending by families will increase the value of equity, not just the price.

Spending on infrastructure will largely go to the labor class. These people will spend and the value of equity will grow without bubbling. And … when we’re done … we’ve got repaired bridges and roads, an electrical grid that works, and so on. Spending on infrastructure is a must. It either happens when it will help the economy or when it will be a drag. Let’s be smart this time and invest in our future.