A Case In Point
When the mayor of Scranton, Pa.took drastic measures for trying in salvaging the cities budget by slashing all municipal workers salaries to minimum wage at $7.25 per hour has set off a firestorm of resentment and even put the city in more economic and financial peril because of his actions. It is time we all should take a cold hard look on what the hell is happening all across the country when cities and towns are confronted with the stark reality of facing bankruptcy and the possibility of receivership that is lurking not to far behind. What the mayor of Scranton has done in trying to rectify a very precarious financial situation, that by the way over 50 cities and counting are facing similar sets of circumstances, by eliminating public sector jobs, reducing salaries, or stipulating full time work as now part time, in essence, this only continues that slide down into more economic despair.
When the tax base, yes it is also made up of municipal workers, becomes insufficient to support all the public mandates that are now required by law which by the way is happening all across the United States, is time for measures that don't do more harm. But, that is exactly the prescription and solution almost every elected official is making today.
It is time for all of us to consider the economy today in another light. Take spending which literally means to use up or extinguish value. Most Americans today equate this definition as what the government whether it is on the federal state or city level is doing today with tax dollars. We have to remember an simple analogy that government spending is not like an engine that burns fuel [money} Government spends money as a continuous feeding loop that circulates money. Take for example: government no more spends money than a say, garden spends water. To spend money on those public services that maintain the health and safety of the public or education is to circulate nutrients through that garden.
Many economists have stated that the way to stimulate the economy, spur job growth and end the cycle of municipal bankruptcy is through more spending. The precise term is the fulfillment of the Williams Theory of Economic Evolution. When the government bailed out the financial institution and the auto industry in 2009 did bring about a resurgence of economic fortunes but that infusion of capital only went to a very small percentage of the population thus the result was not lasting. This should clarify why austerity cannot revive an already weak economy and why more spending can. When we take a closer look at the budgets of most cities and towns and site the discrepancies between revenue and expenditures one common denominator always rises to the surface, expenditures are always more than revenue. Why?
It should be noted that policies from the federal level for the past 30 years have undermined the tax base from which all cities and towns incorporate into their budgets. When tax bases dwindle but expenditures increase what happens is an imbalance that causes more borrowing to equate those budgets. Like our federal debt and deficit. The flip side is that our elected officials continue to slice and dice more of the tax base by eliminating existing jobs and gut salaries that all contribute to that tax base. What is the answer then?
The answer lies back in that garden where taxes are like those nutrients that are so necessary for growth and development. The fly in the buttermilk is that taxes received are falling faster so far behind what is necessary to fund all the public services that each municipality and our federal government is supposed to provide. The best way is to incorporate a well designed tax system that will sustain the budgets of all. Like the nutrients that are needed to keep that garden flourishing. This starts with a 10% flat tax across the board that everyone contributes and benefits from a fair equitable tax structure. This ensures like that garden the nutrients [tax revenue] are circulated to fertilize and foster growth. In this case job creation. The Republican response has always been don't tax the wealthy for their are the engines of job growth. That's nuts! All that is happening is the rich keep getting richer while the middle class keeps shrinking. What is left is a diminished tax base and everyone looses.
Economists state that spending our way out of this economic quandary is about the best alternative there is. But we must remember that the pay back of any borrowing for the spending is to generate the amount of capital that is needed and now warranted. This has to come back in the form of taxes from the recipients of that spending. A double edge sword, maybe not. We must remember that the more people with more disposable income to spend, pay down debt and to save is the greatest economic impact any society can have. In a nut shell the fulfillment of the Williams Theory Of Economic Evolution. In this light we have to realize that the economies that are the most prosperous are the ones that spend and tax the most, while those that tax and spend the least always fail.
To have the Federal Reserve just print more money like another Quantitative Easing that was done in the past will only create more inflation and subsequently increase the borrowing without the tax structure in place to recoup and pay back that borrowing now with more interest. All that will do is increase our national debt. What is needed is a large enough infusion to the general public where one can payoff their mortgage, now be able to purchase that new fuel efficient car or appliance, augment their energy costs with alternative green energy solutions, put at least 10% of their earnings into savings, pay down their credit cards, while paying off their student loans. All of these contribute to the largest economic stimulus the United States has undertaken while securing more job growth in the process and thus creating more tax revenue.
To make this all happen is to rewrite that playbook of the bailout of the financial and auto industries of 2009. Only this time the amount of capital that went to those few now will be disbursed to the taxpayer who happens to be in a continued free fall of financial upheaval. This is where every taxpayer or Income Tax filer will receive a stimulus large enough to actually make a large enough contribution in spurring job growth where in the past none was created at all. The borrowed funds that will make this all possible will be paid back as a result of this stimulus. In other words like that old business analogy "It take up front capital to generate more capital" and not what so many of our elected officials continue to say and do. It is time for bold decisive action instead of all the failed rhetoric that continues to waste time in every political add that's on TV.