What Should Be Done To Kickstart Economic Growth Short Term And Sustain It Long Term?

What Should Be Done To Kickstart Economic Growth Short Term And Sustain It Long Term?

The United States economy has grown steadily but weakly since the 2008 financial meltdown. The history of past recoveries would suggest that the deeper the recession, the stronger the subsequent recovery will be. Why has this severe recession not recovered strongly this time around?

Conservative Republicans argue that increased government spending and regulation tightening are to blame. I argue that the primary cause is the huge and growing disparity in wealth and income between the wealthy and the lower economic classes.

Initially the slower growth was due to a moribund housing market that took at least three years to turn around. This market has been growing strongly for over a year now. The overall economy has been growing but is still in a quite weak recovery.

My view is that a tremendous amount of money is parked on the sidelines not being spent or invested by the wealthy and business. The upper 2% of the United States controls 90% of our wealth. They do not have the need to spend most of their wealth while the rest of the citizenry must spend virtually every dollar of their income.

Corporations are very skittish about spending because of the 2008 financial meltdown and the subsequent severe recession. They continually leave billions of dollars idle while cutting staff and keeping salaries low. None of this is illegal of course. We need governmental policies that will coax more money into the flow of the economy and into the hands of the people who need it most and must spend it.

I will examine four areas of policy action in which short or long term economic growth would be stimulated. These areas are, tax policy, investment incentives, minimum wage growth, and education spending. Finally I will pull all of these threads together and explain how they will combine to stimulate our economy now as well as ensuring a strong economy for the future.

The single largest contributor to the large and growing wealth and income gaps in the U.S. is the continual regression in our national income tax policies. This started during the Reagan Administration and hit its pinnacle with the 2001 Bush tax cuts.

Ronald Reagan came into the Presidency in 1981 as an ardent proponent of lower taxes and immediately pushed through a sharp tax cut. This was followed by tax reform legislation in 1986 that drastically cut rates while eliminating deductions. His economic advisors were strong believers in "supply side economics" which is an economic theory espoused by the economist Arthur Laffer. This theory states that cutting taxes will provide more funds for the private sector to invest with. Economic activity is thus increased which in turn increases profits. Eventually this economic growth will trickle down to workers whose net income will increase due to higher wages and an expanded job base. Or so the theory goes.

Economic activity did increase in the 1980's but income tax rates at their highest were at 70% prior to the Reagan cuts. These rates were stifling economic investment. The Bush tax cuts of 2001 put supply side economics on steroids. As with steroid use, extreme regressive tax cutting has proven to be destructive to the American economic body in the longer run. Economic activity is now being restrained because the upper 2% hold the bulk of the American wealth. They will never be able to spend more than a fraction of that wealth. Therefore economic activity will be extremely limited.

I would have allowed all of the Bush tax cuts to expire but political necessities caused President Obama to limit these expirations to incomes above one million dollars. Ideally I would have raised these higher income tax rates while letting the rest expire. The higher rates on those with lower incomes is nominal while the rise in rates on the wealthy would have netted huge amounts of funds. Thus our budget would have plummeted while also freeing up funds for social programs for the poor. This would have stimulated economic activity because the poor must spend all of this additional assistance. The rich would be without a fraction of their previously idle wealth.

A more progressive income tax system is not the only alternative to stimulating our weak economy. Investment incentives are positive ways for business and the wealthy to benefit themselves while also getting their hoard of funds off the sidelines and circulating through the economy. I have a three pronged approach.

The first is to finally create and finance the often proposed Infrastructure Bank. This bank will be a government and private sector collaboration. There have been several variations proposed regarding this idea. The basic plan would be for the federal government to borrow a large amount of funds. Fifty to sixty billion dollars are the common levels advocated for. This pool of money would reinforce and leverage private funds to finance proposed and approved public infrastructure projects.

This new bank would be a separate entity run by a Board of Directors from both the public and private sector. Ideally the public sector would provide the Chairman since it is a bank formed for the benefit principally of the public. Of course extreme benefits would also accrue to the private sector by way of large profits and much more effective and reliable infrastructure. This bank would combine two vast national needs. The need for investment to create jobs and the need to repair our crumbling infrastructure.

The second area that I feel we should address is the creation of new investment tax credits. These credits would encourage business to invest their massive pool of idle funds into corporate projects that will stimulate our economy and thus create jobs. These credits have the same aim as changing our income tax system into a more progressive one. The exception is that these taxes will benefit business and the wealthy if they take advantage of them.

The bottom line on both of these ideas is to remove these billions of dollars out of limbo and getting them invested into our economy stimulating growth and increasing employment throughout the United States.

Thirdly, I propose a new Jobs Credit. Any company that hires staff above their previous levels and keeps them there or above for at least three years would receive a tax credit. This credit would be for a percentage of the salaries of those hires. Each company would receive part of this amount each year for this three year span. The credit would end if these new hires were terminated at any time up to the three year mark. This will obviously increase employment steadily and hopefully for the long term as the economy strengthens.

I will now turn to our minimum wage laws. The minimum wage has remained relatively stagnant for the past 25 years compared to our nation's inflation rates. It is about time that we had a significant increase in our national minimum wage rate both for economic fairness and economic stimulus.

The people that currently work for the minimum wage or slightly higher are living below subsistence levels. Therefore 100% of any total increase in wages for these workers will have to be circulated right back into the economy. The economy will grow stronger increasing revenues for business even though their wage expenses will grow slightly.

Henry Ford knew the wisdom of this action going back to the early days of his company. He raised the daily wage of his auto workers from $2.38 a day to $5.00 a day in 1914. Other corporate titans howled and ridiculed him predicting his company's rapid demise. Ford knew that by making his workers more prosperous he had created thousands of new customers. He also knew that this would create far better morale in his workforce which meant much better productivity and quality from his workers.

The sale of Ford's cars soared after this wage increase and was sustained for many years. The same outcome can be expected for the United States economy if our minimum wage is increased to $10.10 an hour as the Obama Administration has proposed.

Finally, I believe we need a serious increase in education spending both for employment retraining and for improved higher education funding to sustain a first class workforce for the future.

Most states already have some sort of employment retraining program. Unfortunately the vast majority of these programs are woefully inadequate to the size and nature of our current long term unemployment climate.

I propose a federal grant program for employment retraining. Each state would be allocated a block of funds based on the size of their unemployed workforce and the scope of the retraining that the state proposes to utilize. This program would turn existing retraining programs into more substantive and effective ones because of proper funding. This would put a serious dent into long term unemployment rates all around the country.

A second area of educational policy that our federal government should take up is the expansion and restructuring of funding for college loans and grants. Our economy has evolved from largely manufacturing into more of a high technology economy. This trend will only accelerate. A college level education is vital for the filling of jobs in this higher level economy.

Many potential students currently cannot afford to attend college. Many others assume crippling student loans so they can accomplish their goal of attaining a college degree. I propose a massive expansion of federal grants for college students. I also propose a new student loan program not run by separate for profit financial institutions.

These financial institutions have recently failed to provide significant interest rate relief to these struggling students. Profits have ruled over the goal of aiding students. This program should be run by the federal government with the emphasis on debt relief and not profit.

In turn, student must be held responsible for diligent studies and not for wasting time and money. Therefore I believe that students who fail their courses should be required to repay all or most of their grant money and pay a market interest rate on their remaining student loans.

Finally I believe a program should be instituted whereby graduated students may perform national or local civic jobs which will satisfy part or all of their student loans depending on the nature and scope of those duties. This program would ease the financial burden on these students, give them valuable professional experience, and provide society with affordable educated labor to aid in the administering of many of the duties necessary to that community.

The bottom line solutions needed to kick start our economy out of its anemic recovery into a robust one clearly must center around coaxing corporate and upper class money off the sidelines into the circulation of our economy. Our tax policies since the Reagan Administration have become steadily regressive resulting in a huge disparity between the wealth and income of the wealthy and the lower classes.

The United States needs to raise income rates especially on the wealthy to narrow the wealth gap. This would not only help to balance the budget but it would free up money to sustain and expand desperately needed social programs for the poor. These funds would all be spent immediately due to necessity stimulating the economy.

Infrastructure spending, investment tax credits, and a new Jobs Credit would also help to bring the surplus of corporate money into circulation throughout the economy further promoting growth. A significant minimum wage hike would further stimulate the economy immediately while bringing millions of Americans out of poverty or nearly so.

Employment retraining and increased higher education investment will help to strengthen our economy as well as sustaining its growth. This will happen because long term unemployment will decrease and the workforce's long term educational acumen will increase.

It has always struck me that the conservative Republican line of constant and drastic budget cutting was always "penny wise and pound foolish". Yes, we certainly need to sharply cut our huge budget deficit. Eventually it will begin to strangle our economy if left alone and allowed to grow. The question is what type of cuts are effective and which make no sense.

Cutting social programs and education spending are pound foolish because they will weaken the economy short term and long term respectively. That is pound foolish. Actually, increasing taxes on the wealthier among us will help us to expand these programs and further stimulate our economy.

The fact of the matter is that wealth has become so skewed to the upper 2% of this country that much needed funds are being held out of our economy causing its stagnation. Cutting our national budgetary belts would exacerbate this problem not help it. We need more common sense observation of our economic options instead of these "knee jerk" reflexive budget cutting tendencies.

The economic options that I have outlined in this Hub will bring more balance into our economy as well as giving it the fuel to grow robustly. The economic growth that my proposals would engender will grow our tax revenue base so strongly that our deficit would rapidly decline. This economic strength would build upon itself and I believe we would soon find ourselves in a position similar to the surpluses of the late 1990's.

We need to urge our lawmakers to pursue more sensible economic paths and not succumb to the "sky is falling" deficit panic nonsense that the Tea Party and their acolytes cry for. Our future as a prosperous and fair nation are at stake.

Do we want a country of simply a small wealthy class and a largely poor one? I do not think so. Besides, that condition would ruin our national economy and destroy all of us. Both rich and poor. We cannot and must not let that happen. I believe my proposals would avert that scenario and I hope our political leaders will take them up and bring common sense back to economic policy in the United States.

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Comments 20 comments

FitnezzJim profile image

FitnezzJim 2 years ago from Fredericksburg, Virginia

On the other side, there are a lot of folks who believe that economic governance is the problem. Controlling a free economy is like armchair quarterbacking, an oxymoron.


HSchneider 2 years ago from Parsippany, New Jersey Author

That is very true, FitnezzJim. I disagree with them. A so-called free economy is never really free. Companies will attempt to cut any corners, create monopolies, and attempt to gain any advantage on the competition no matter if the consequences are dire to the citizenry. This has been shown to be true throughout our economic history and has led to government regulations to make the playing field fair. I believe that the enormous and growing wealth and income gaps along with corporate hoarding of billions of funds is stagnating our economy. The free market will never remedy this. They will only exacerbate it. This Hub illustrates ways that I feel are advantageous in getting these funds circulating through our economy. I believe this will robustly grow our economy and put a serious dent into our unemployment rate. I also believe that leaving this problem to the free market will send us into a depression. Thank you for your comments.


Ericdierker profile image

Ericdierker 2 years ago from Spring Valley, CA. U.S.A.

You are nuts. So go get me banned. I do not have a job like you would think of it because of the government requirements. So I cannot get insurance or work on an hourly for over about 30 hours a week. I am fortunate because I own Dierker Consultancy. But normally I work also as an employee for clients and now it is just not feasible.

suggesting this is business without mandate from government is irresponsible and wrong.


HSchneider 2 years ago from Parsippany, New Jersey Author

I am sorry that your are having problems with some government requirements, Eric. I also am not sure what you are driving at and what it has to do with my Hub. I am guessing you are referring to the Affordable Healthcare Act and its employer mandates. My Hub does not refer to that law at all. I never suggested that business does not have any mandates from government. If you are suggesting that government should have no role in regulating business, I totally disagree with you. If that makes me nuts, in your words, I am guilty. I consider that Liberal or Progressive but use whatever pejorative term you wish.


JohnfrmCleveland profile image

JohnfrmCleveland 2 years ago from Cleveland, OH

You are undoubtedly going to get an earful from the free-market-solves-everything crowd, but that is because the market isn't solving anything these days, and their only choices are to blame government or renounce their own beliefs.

What conservatives (and most progressives) cannot seem to comprehend is that economic activity does not create dollars; rather, dollars create economic activity. And only the government is willling to supply more dollars than it takes back. Businesses certainly will not, and this is why it is futile waiting for some condition(s) that will induce them to spend their savings and save the economy. Without some promise of earning more dollars than they spend, businesses will hold tight, because that's what for-profit businesses do.

The dollars needed to move the economy MUST come from the government. But those dollars would be wasted catering to the private sector (retraining labor, for instance). The private sector is doing just fine on its own - the profits are there, and GDP is there. The problem is that they are meeting all demand with far less than 100% of the labor force. That's what happens when your workforce is very productive - you are able to produce more than you can consume. Demand becomes the limiting factor, not labor.

Instead, we should simply increase public sector employment, and pay for it with deficit spending. And not just low-wage jobs, either; cops, firemen, teachers, more research grants, infrastructure projects, etc. - useful stuff that doesn't interfere or compete with the private sector.

There it is. 100% employment, more middle-class jobs, and a thriving economy, all completely sustainable. We just have to convince enough economic Neanderthals that fiat currency economies don't go into debt when they create currency.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments, John. I do expect a lot of push back from conservatives but so be it. I agree with you that we need government spending to create jobs. I believe the often proposed Infrastructure Bank would be the best way. Everyone wins. The best example that this Keynesian economic policy works is, of course, FDR's Great Depression policies. We were slowly coming out of it until Congress and, to some extent, FDR, pulled back and tightened our economic belts in 1937. Then we fell backwards. Our tax system must also become more progressive. The wealth gap has gotten totally out of hand. I would not take rates to the pre-Reagan era but certainly to pre-Bush. The minimum wage must also be raised in addition to your prescriptions. Thank you again for your thoughtful and provocative comments.


Sanxuary 2 years ago

Raise wages, demand full time employment, make the rich pay their taxes (I did not say pay more, you have to pay taxes first), capitalism only works when people have money. Socialism is created by the people who condemn it most. Look at the number of employers who's employees earn more on food stamps? More wealth at the top deserves to be paid at the bottom for higher profits. Now which greedy socialist condemning self righteous scum bag wants to do the right thing? These are the same people who burned your 401k while gambling on the stock market. Why should we trust these people with our money when we are left with Social programs. They were the ones who sold us lies and profited anyway and got bailed out. Then they claim that they got rich because there so smart. Their failure is at the bottom right their with their humanity and they better pray that there is no God. All those poor people they complain about are the people who buy their garbage every day. To get rid of them they would have to get rid of those who made them poor first. Create their own jobs, invest in things that have rewards and find a way to not include these con artist in their finances. People are only stupid because they only gave them the choice to be stupid. If given a better choice I am certain they would find a way to not live in poverty and to never trust the people who made them poor in the first place.


HSchneider 2 years ago from Parsippany, New Jersey Author

Corporate America is very guilty in creating the dire economic situation we are in today, Sanxuary. I believe they should be controlled more so they do the right thing by their employees and the consumer. They also should have been held to account more for the 2008 financial meltdown. Thank you for your comments.


B. Leekley profile image

B. Leekley 2 years ago from Kalamazoo, Michigan, USA

HScheider, your essay mostly makes good sense to me, and the rest of it is beyond my ken.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments, B. Leekley. They are appreciated.


rebelogilbert profile image

rebelogilbert 2 years ago from Hacienda Heights, California

I like your ideas to improve the economy HSchneider. I recommend you run for political office. Our government needs intelligent minds and you have one. Your article is very well organized and researched.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you very much for your kind comments and compliments, Rebelogilbert. I do not think I would have the stomach or money to run for political office.


cecileportilla profile image

cecileportilla 2 years ago from West Orange, New Jersey

Hi HSchneider:

You did a lot in researching this Hub. I agree with you regarding employment retraining, higher education, increasing the minimum wage and increasing taxes on the wealthy.


HSchneider 2 years ago from Parsippany, New Jersey Author

I try to do as much background research as I can when writing my Hubs. That is why I often have a lengthy gap between them. Also because of my regular job. I believe that if our government would implement the solutions you cite from my Hub, our economy would rebound robustly. Thank you for your comments, Cecileportilla.


chef-de-jour profile image

chef-de-jour 2 years ago from Wakefield, West Yorkshire,UK

I respect your research and presentation - informative and a good read, despite the subject matter being economics! I don't understand everything you've written but I get the gist I hope.

An economic system that works well for everyone is a bit of an Ideal but I do agree with you about the wealth gap, which is also very apparent here in the UK and I suspect always has been, from day one of capitalism (whenever that was!).

I recall the trickle down theories in the Reagan/Thatcher era. Create wealth for the elite and their money will magically descend to the poor they claimed! Some con that was. Manufacturing bases in the US and UK were shrinking back then and still are (Asia and China have taken over of course). I'm no expert but fewer manufacturing jobs in the economy = less tax flowing back in, fewer products being home made, more import happening. Capitalist markets dictate the rise and fall of factories.

Personally I'm very annoyed by the banks. They're up to all sorts of skulduggery with the markets and rate settings; they don't loan as much as they should to small business and they have the audacity to award themselves huge bonuses claiming that if they didn't do this, the best bankers would simply leave and join rival banks!! Incredible.

I'm all for raising the rate for the super wealthy. And I'd like the tax evaders to be brought to justice. It's a scandal that billions of dollars are lost 'out there' due to evasion and loopholes.

Finally a question - if the big corporations are stashing their profits away, in which banks do they do this, or do they buy gold and store it away for a rainy day?

Finally why on earth isn't a decent living wage given to the lowliest of workers? Surely there's enough money swilling about in the system for this to happen. Politicians know this - what are they up to?


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments, chef-de-jour. Most corporations have been keeping their money in safe and fairly good yielding US Treasuries. They receive safe yields and avoid taxes. Both the U.S. and the U.K. have been experiencing structural economic problems for a long time by way of their manufacturing bases. There really is no way to reverse this short of outright protectionism which would hurt their economies as a whole. Both need to invest more in infrastructure and education to prepare the citizenry for this new high level technology. The U.S. banks were indeed major culprits in the 2008 financial meltdown. Hopefully the new regulations will be enough to restrain their greedy impulses. I do have my doubts regarding that. A living wage, or a decent minimum wage is much needed and long overdue. It would also boost the economy because the people receiving it will have to spend it all providing much needed stimulus.


IndependentMind profile image

IndependentMind 2 years ago

Great article with sound ideas based on common sense. That; in itself, makes it unpalatable to politicians and corporate America both.

I am afraid that 99.9% of our politicians have no concept of what you are proposing and will fully reject anything that Corporate America tells them to reject, no matter how logical those proposals might be.

I just read an article based in common sense theory as well that will never see the light of day: http://hubpages.com/politics/Cap-and-Trade-revisit...

Another dreamer who sees the world through rose colored glasses with dreams and ideas that will never be accepted by the capitalistic thieves that run this country and this government.


HSchneider 2 years ago from Parsippany, New Jersey Author

Thank you for your comments and kind words, IndependentMind. Unfortunately I agree with your assessment that our politicians, at least for now, would never accept my proposals due to their being in the pockets of Corporate America. This is due to that abominable Citizens United Supreme Court decision. This was reinforced by their McCutcheon decision. Now there is unfettered corporate campaign contributions and all independent political action is out the window. It is a sad state of affairs and I sincerely hope the Court changes soon and brings a semblance of sanity back into our political system.


IndependentMind profile image

IndependentMind 2 years ago

The sad part about that SCOTUS decision is that it can be rectified immediately by congressional action, but the politicians will not take any actions against Corporate America since they see such actions as "career killing", and ''their'' best interests are greater than the interest of the people in general.


HSchneider 2 years ago from Parsippany, New Jersey Author

You are absolutely right, IndependentMind. This corporate money is like "mother's milk" to them. The Republicans rely on this source more heavily than the Democrats but they both receive a huge amount from them. Our elections and politicians are being bought by Corporate America because 5 men on the Supreme Court decided that corporations have the same freedom of speech as people do. Thank you again for your comments.

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