Sunday, September 25, 2011

My plan for US economic recovery

The Democrats and Republicans keep arguing about the economy and taxes but without really connecting the two.  Because of the seeming disconnect I think it's necessary to go back to 'first principles', to sort of start over.

The first and most important fact, which I don't think the politicians ever mention, is that work creates wealth.  If you pay me to do something -- anything! -- for you, the profit I earn on my labor is newly-created wealth.  If, in turn, I then use this new wealth to pay YOU to do something for ME then you have now created wealth!  Even though the physical cash is a 'zero sum' game, we both end-up wealthier for having traded services.  (The same is true for selling goods.)  This is the reason GDP is so important.  It is supposed to be the measurement of all economic activity in our society and, all other things considered, the more activity the better.  (This is also the reason that the Federal Reserve has been aggressively lowering interest rates, to try and promote economic activity of ANY KIND.)

The problem is what happens with this new wealth. 

Is it put back into the economy to pay for still-more goods and services, hence still more wealth?  Or is it put into savings accounts, effectively removing it from the 'active' side of the economy?  Obviously, we need to have some reasonable amount of savings so that there is money available for investment.  But, as Alan Greenspan correctly noted in his (post-Fed Chairmanship) autobiography, there has been a worldwide glut in savings for the past two decades.  The proof: a steady decline in the interest rates available to savers.

So, for Republicans to claim we need to continue reducing taxes on the rich is clearly false.  There is already far more than enough savings available for startups and capital investments.  Instead, the tax policies of the past decade (cough*Bush*cough) have simply allowed the ultra-rich to redirect a significant amount of wealth into their savings -- and away from more productive uses in the hands of workers. 

This isn't class warfare.  It's simple economics.

The solution, I feel, is a new corporate tax based on executive pay.  Ideally this would be implemented as part of a general tax SIMPLIFICATION plan.  History has shown that stockholders are unable to influence or control executive compensation, so I think the government needs to weigh in. 

Herewith, the new 'TOVAR POLICY' (though I don't think I'm really the 1st to say this):
Any corporation who's executives earn more than 20x the median income (of it's employees) must pay an additional corporate tax. 

If an executive committee really thinks their CEO is responsible for such a large share of their profits, they'll need to pay for it.  My hope, of course, is that they'll choose instead to lower executive compensation, or give raises to their employees!  The point being: a larger percentage of the wealth generated by the company should go to the employees and stockholders, where it will be returned to the economy, and less to the handful of ultra-rich executives who can't possibly spend it all.

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