By Brian McKay
Times are uncertain. zenruption articles have established certain weakness in the economy currently and the potential for some harsh bleed over from international developments. Congress could do two things right now to get ahead of everything. Unfortunately, our U.S. representatives have consistently shown themselves to be reactionary and not proactive, which could seriously cost us.
The writing is on the wall now. It’s not like a surprise is hidden in complex debt instruments, as in 2008. Global weakning is on display daily. If your Congressman doesn’t see it, fire his ass in November. We all once loved getting the tattoo at the bottom of the Kracker Jack box, but this is a little different. This time the surprise isn’t a temporary tattoo that goes away in two days of bathing, it is a global event that screws you, the middle class, for a long period of time. The wealthy will come in and swoop up your assets that you lose at an extreme discount and rent them back to you. How do you feel about that?
So what could Congress do right now?
Congress should immediately pass an infrastructure update bill with $750 billion allocated right NOW, to fix our decrepit bridges, highways, power systems, etc. Why? It has to happen eventually, why not tackle it now? The revenue injection would filter throughout the economy in the form of both new direct and indirect employment opportunities and lift wages dramatically. That unemployment is currently low, additional bargaining power would result for entry level employees forcing up the lower wage segments.
With this plan, hundreds of thousands of jobs would be created, both directly and indirectly. Wages would be forced up through further constraint of employees in the marketplace. The service sector would have to pay more to retain those that could otherwise make more on a highway crew. As zenruption has mentioned previously, a recent IMF study shows that for every 1% of Gross Domestic Product (GDP) that moves to the bottom of the economic ladder, 5 year GDP grows by .38 percent. The economy would be absolutely, positively impacted!
Many might say that the current deficit is so high that the U.S. cannot afford such a move. The counter point would be that the U.S. cannot afford to not make such a move. Recessions cost the government revenue. Big, hairy, nasty revenue. Any move that help prevent such revenue loss is simply a good investment in the future. . In all actuality, the upward spiral of growth could potentially create additional tax revenue that would additionally reduce the deficit. Yeah, this isn't that supply side crap your dad believes, this is true bottom up growth.
The next step is to induce U.S. companies to move overseas funds back to the U.S. Estimates of the amount of money corporations hold overseas come in at about $1.2 trillion dollars. Yes, that is a hell of lot of money.
U.S. corporations are stashing those funds in order to avoid paying U.S. income taxes. So let’s let them bring the money back without paying taxes… but with stipulations. A reasonable stipulation would be showing 3% employment growth within the company each year for a 2 - 3 year period. Additionally, a requirement of those companies spending an additional 25% of the repatriated funds on capital expenditures (equipment and real estate), would continue to further boost growth.
The Federal Reserve Bank has spent years targeting a 2% inflation rate as a catalyst to increase the Fed Funds rate (the rate that banks lend each other overnight). Yeah… we are having a very hard time hitting that. Low gas prices have made it even harder. You might think inflation is bad. It’s not in moderate amounts. Inflation is indicative of growth and moderate inflation means growth is happening. The worst case scenario is actually deflation (we will avoid a whole definition but the link will provide it). Basically, we don’t want that deflation stuff and should do anything possible to avoid it. 2.5% - 3% inflation would be excellent and signal true wage and economic growth.
Between both initiatives, the Congress could set up a situation that truly decouples the U.S. economy from the weakness being seen in the rest of the world. It would be the most pragmatic piece of foresight the U.S. government has ever undertaken.
All of this is a no brainer. Well at least to enlightened zenruption readers it is a no brainer.
It won’t happen. Fractured parties, an election year and complete Congressional dysfunction guarantee it.
This plan may sound radical and this two part plan certainly isn’t being proposed by anyone else at this time. So fucking what? It works. It’s good for you and it’s good for your country.
zenruption challenges you to forward this to your elected representative and just see what their response will be. More than likely it will be the generic crap of elected officials that comes on a form letter with a robo signature. That is simply sad. In nine months we might see the results of what didn’t happen. By then it will be too late.
Brian McKay is a co-founder of zenruption and has his MBA from Boise State University. He is a total economics nerd and often dreams of gettng a PhD (complete nerd). Fortunately, his 12 year old daughter is telling him that nerds are now cool.