Friday, February 20, 2009

A Better Stimulus Package - Research and Education

Obama’s recent stimulus package will help to plug a lot of holes in state budgets across the country. It will also marginally improve the infrastructure situation. However, 40% of the package is made up of tax cuts, and for that and other reasons, I believe that it will be very unsuccessful in actually helping the economy recover.

I believe that the road to economic recovery for the United States is not one of tax cuts or stimulus packages, but one which made this country great in the first place: massive spending on scientific research and education.

I do not believe in trickle-down economics, like the Reagan/Bush/Clinton policies, because that theory is based on a belief that excess money, spent by wealthy individuals, floating around in society, will somehow create wealth for all citizens.

I also do not believe in Keynesian economics, like the stimulus package, because that theory is based on a belief that excess money, spent by the government, floating around in society, will somehow create wealth for all citizens.

You can probably tell where I’m going with this: the basic flaw of both trickle-down and Keynesian economics is that the money that the government spends and/or controls in other ways has no direction or purpose.

I’m not saying that the government should tell people what to spend money on, or that there isn’t a large role for the so-called “invisible hand” for people in society. I’m saying that when the government spends money, it must do so with a specific purpose, and do it well.

There are two important issues to consider when delving deeper into this: economic growth and job creation. These are favorite expressions of politicians, but most politicians have only a vague idea of what they actually mean.

Economic growth occurs when something is added to society. If someone gets up off the couch and starts growing potatoes, he or she has contributed to economic growth. Economic growth does not occur if the government gives someone a tax cut or chooses to spend tax money on road maintenance.

Job creation occurs when someone hires an unemployed person and pays that person’s salary with the revenue from increased production. When the PC was invented and Silicon Valley hired thousands of people, that was a perfect example of actual job creation.

Job creation does not occur when the government hires someone to work on road maintenance or when a company hires someone and pays the salary out of money left over from a recent tax cut. (the government could create jobs by actually starting their own business enterprises, but that is rather unusual).

Hence, both trickle-down and Keynesian economic policies are ineffective for economic growth and job creation, especially in times of crisis. In order to actually spur job creation and economic growth, you need something specific, something new, and American history provides excellent examples.

After World War II, The United States started spending massive amounts of money on higher education and scientific research. Young people were able to go to college for free, and scientific researchers were making strides like never before. This enabled the U.S. to go to the moon, invent vaccines and computers, and become the most industrially and economically powerful country in the history of the world.

In sector after sector, The United States became the world leader with the help of education and research, and this laid the foundation for the immense prosperity that the country still enjoys today. Unfortunately, since Nixon, all that prosperity which was originally created by everyone in society, has been funneled only to the top.

It would be very difficult to make the case that these industrial advances came about as a result of trickle-down, low tax economics. Nor could it be argued that Keynesian economics was behind it, because it was not used.

It is crystal clear that America’s prosperity mainly came about as a result of massive government spending on research and education, and it is to this that we must return.

In order to actually create jobs, and to achieve actual economic growth, the U.S. government should:

- make college education much cheaper, and free for as many people as possible

- fund research into as many areas as possible and help industries with the practical application of research results

- create national standards in the most important school subjects, such as the natural sciences and English

- end the system where local schools depend on local real estate taxes, and centralize funding for schools

These are only a few ideas for a new stimulus package with a real potential to help the American economy, and there are myriads of other things that could be done quite easily. A stimulus package full of tax cuts will do nothing to help the American economy recover, but research and education will.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

1 comment:

an average patriot said...

The tax cuts are worthless! If Republicans really think you know better what to do with your money then they should give everyone $10,000 do what you said and invest the rest in infrastructure and putting the people to work.

Anyway you look at it we have spent approximately $10 trillion already and done nothing. This will not be much better. This is still just beginning and will dwarf the Great Depression in every respect!