December 7, 2010

Unfocussed 'Stimulus' & Thoughtless Tax Cuts/'STB'

... are One & the Same Animal !
Under current conditions, Both provide rent & boost to the entrenched, inefficient and resting, while Education & Infrastructure continue to languish.

When Corporate Profits are maintained and grown by Govt purchases, there is little need to innovate, keep focus on the dynamics in the real market, no hunting for talent & wage competition. A small niche on the Top of zombie-Corps-on-public-support corner all the gains of their "business acumen". Giving the same people Corporate & Personal tax cuts is the same thing in their other hand !

Tax rates are already very low, and factoring the slush of deductions, exemptions, expensions, and special rates, effectively even lower. Reduction in Corporate and Personal taxes further only amounts to more money for no incremental work or innovation in business. Worse, in the upper income strata, it goes right into the secondary market merry-go-round of stocks, bonds, commodities and Gold. It wasn't too long back - in 2008 - when speculative exuberance in Oil futures seeded the precipitation of today's crisis. The fragilities in the system were, of course, more fundamental, but the excess liquidity indulging in oil speculation imploded it.

Plugging tax leakages to fund Pay as You Go public investments, partly deficit financed, provide valuable improvements in Education and physical infrastructure while seeding some additional employment (money for useful delivery) and, thereby, Demand for what's produced by others. Govt tapping into the market to finance the deficit would raise interest rates - that improves the hard hit income of the retirees that have a need to keep their money is Risk free avenues.

In other words, the Next (Comprehensive) Deal has to be the reverse of what happened today: Focus and Zero-Base Justification in Govt spending, Allowance for Creative Destruction in the private sector in Return for Closure of Tax Leakages and CorpExecutive Welfare.

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