Friday, August 19, 2011

The Shredded Safety Net

I was thinking about what could loosen the purse-strings and get people spending again. Now, I'm not an advocate of profligate spending at any time (my family will confirm that), so I wouldn't want people to falsely feel safe to overspend.

For some people, having a bonus in their pocket is enough stimulus to spend, but most of us take a longer view. We want to feel sure that we won't regret the expenditure, so we have to believe the money will keep coming in.

It's hard to do that now with the job market as lousy as it is. Being able to count on our jobs or the good chance of getting another job is the safety net for most people. Rather, it was the safety net. No other safety net is going to take the place of a robust job market. Even if we once counted on our home equity or credit lines, no one these days realistically believes they can live on their home equity, credit cards, or savings for very long.

With the job safety net so tenuous, most of us are going to try to bulk up our other safety systems--our savings and any other income streams -- and pare back our obligations so we can live on less if the dreaded event occurs and we lose that job.

The renewed focus on jobs by all political parties is welcome, but I'm not hopeful that we can stimulate job creation by supply-side methods (lowering taxes) or by government programs. Both methods will raise both the deficit and doubts about our future, which isn't good for our job climate. I eagerly await the job proposals by all serious national leaders.


Anonymous said...

When the private sector chooses to create jobs domestically, it does so more effectively than the public sector. But--and this is **the** but!--too often the private sector choosess to take its tax cuts and invest them in job creation abroad, too often eliminating jobs in this country in the process. My suggestion is this: raise tax rates on corporations, but offset them with equivalent newly-created tax breaks for creation of full-time, living-wage positions in the US. Similarly, reward companies, including small businesses, for raising their minimum-wage, part-time positions to full-time, living-wage positions with health and retirement benefits. Then the current working poor will have more money to spend, which will improve the economy a whole lot faster than continuing to channel the country's wealth upward to the mega-rich. I know that this plan offends prevalent "wisdom" about keeping tax rates low and eliminating "loopholes," but it offers a better chance to create broad-based prosperity.

ModeratePoli said...

While I agree that too much corporate investment has gone to stripping jobs in the US and moving investment overseas, I don't see how raising the corporate tax rate can help. T think the entire tax code needs to be reformed, with the accumulation of deductions greatly reduced. This should happen for business as well as households.

My preference would be to do the reform first or in conjunction with tax breaks for job creation in the US. I wouldn't put job creation tax breaks first, because that is going the wrong direction in tax code complexity, and businesses may still hold back if a tax reform is looming.