Tuesday, January 22, 2008

Tax cuts aren't enough

Because our corporate tax rates are already the lowest in the western world and this hasn't done much. It's really dubious that money from tax cuts will be used to invest in expanding businesses, which is the theory behind tax cuts helping the economy. Lowering interest rates is even worse. The theory there is that businesses would expand their operations if the interest rates on loans was low enough. But our interest rates have been at rock bottom for a long time, and even worse they were the catalyst for the housing bubble as well as the subprime loan market. If mortgages are as cheap as can be paying an enormous amount for a house can in some people's eyes seem like a good deal. And the housing bubble actually triggered the recession after it burst.

Instead, what's needed is a direct economic stimulus through subsidies handed out to strategic industries, productive industries actually making things that we would want to nurture and to encourage in their growth. A rebuilt auto industry would be a great place to start, as would a rebuilt steel industry. By actually giving money to people, with specific agreements that it would be spent in ways that modernized and streamlined the industries, the subsidies would not only create a chain reaction in spending as companies bought more stuff from suppliers but would create the conditions for long term economic recovery and growth.

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