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Sunday, January 27, 2008

COMMENTS ON THE ECONOMIC STIMULUS PACKAGE

COMMENTS ON THE ECONOMIC STIMULUS PACKAGE

Most economists would probably agree that a stimulus package is needed to avert the impending recession of 2008 and it might work. But there are some in the political and financial world who think it could have been better. Some people remember the so-called “Great Depression,” and it was great at the time in 1929. We have not experienced such a Depression as that since. President Roosevelt instituted a great recovery program taking our country out of the depression. He created the greatest “Stimulus Package” our country ever knew up until that time. He must be given credit for that. He immediately put people to work on the WPA – Work Progress Administration. It was the largest New Deal Agency putting millions of people to work. Many of the roads and bridges that were they built are still landmarks in our country today. My father worked for the WPA, and he told me that the workers with whom he worked knew how to build good roads and safe bridges.

I wish to examine what happens to $100 given to a person to spend in the economy ostensibly to stimulate growth. The average person will go to a store like Wal Mart and purchase an item most likely made in China or some other place in South East Asia. Or they will put it toward the purchase of a foreign built car or electronic device. So some of this money will wind up in another country. Some money will stay within the country by paying for services or people working. The money will keep the economic wheels turning but it is status quo spending and not upward in its movement. It is my belief that very little will go to purchase capital equipment made in the USA thereby adding to our GNP.

Let us examine another scenario that I saw Mike Huckabee propose this week. Let us now do the math. Suppose that the $100 went to pay for a person constructing a bridge or road on a WPA-like program. The road gets built using American labor or even using an illegal immigrant. The person who has to work for a legitimate company must pay 7.65% for Social Security and Medicare and the employer must match this amount. So the government immediately gets back 15.5% on its investment, not bad as investments go! Additionally, the employee must pay, let us say 29% (rounded to 30%) as a very conservative figure. This brings the total return on the government’s investment to 45.5%. The government will receive almost half of its money back. Where can you get a guaranteed return like that? Eventually, there will be only half of the original drain to the Treasury. And let us remember that we have a road or bridge to somewhere built, if congressional leaders keep their porky hands off and not build another “bridge to nowhere!”

Roosevelt was an amazing man. Although he was not an economist, he must have surrounded himself with good advisors who told him what he needed to do to solve the problem of the “Great Depression.” Additionally he had a cooperative Congress. We need a man like that today. We might have it in President Bush who has guided our country through the great recovery after 9/11. Although the many who will not give him credit for that are now blaming him on the economic downturn. That is politics, folks! Unfortunately, what we do not have today that Roosevelt had was a cooperative Congress. Today we have a schizophrenic Congress who do not want to work with either the Executive Branch nor among themselves. I will give credit to the House who within three days of the President’s speech on the economic package came through with a bill – the first time such cooperation has occurred in the past several years. But, we are now awaiting the truly schizophrenic Senate who say it will take them three weeks. I have carefully watched both the House and Senate especially during the past 20 years. The Senate is full of legislators who do not legislate. They are good at bringing home the pork, however. Many are self serving to the money of special interests. Although the House may also act in a similar manner, they, at least, appear to accomplish more on matters which deal with the economy or solving the problem of illegal aliens. The Senate is full of individuals who want to make themselves a big name so that they might run in the next presidential primary. Sorry if I sound cynical, but I have been watching these guys for too many years now, and my observations warrant my cynicism.

Presidential candidate Ron Paul offers his economic stimulus package for the nation's ailing economy. Paul’s Comprehensive Economic Revitalization Plan has four main areas of reform. Paul offers massive Tax Reform, Spending Reform, Monetary Reform, and Regulatory Reform. In the area of tax reform, Paul calls for the elimination of taxes on savings and dividends, repealing the death tax, cutting taxes for working seniors, eliminate taxes on social security benefits, accelerating Depreciation on investment, eliminating taxes on Capital Gains, eliminating taxes on tips, and he supports Mortgage Cancellation Relief Act. Paul’s proposal may amount to the largest tax cuts in history. He doesn’t stop there. Paul has consistently said that by reducing the size of the federal government to the level it was just ten years ago, federal income taxes could be entirely eliminated. Apparent first steps in that direction are spending freezes.

It is Mike Huckabee who is now suggesting a WPA-like program as an economic booster. The other candidates want to give it to more individuals probably to secure more votes. A WPA-like program makes sense for the reasons I already gave.
Although I like many of Ron Paul’s ideas for the long term, I believe the idea of a WPA-like program would be better as a start initially.

nicola michael c. Tauraso, M.D.
Director, Tauraso Medical Clinic
www.drtauraso.com

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