- 20 May 2009 22:59
#1912127
By Adrien.
Today, we reach the very end of this series treating of the relevance, qualities and potential flaws of Keynesian stimulus plans aiming at up-starting the economy through an increase in demand, to put it but in a few words. In the previous entry, which works with this one it is true, we saw that 'public works' policies were outdated and missed the target when it came to solving a crisis like the one we are going through today. In this last entry we will see that tax cuts present the very same flaws.
Are tax cuts the equally efficient mirror image of a stimulus plan ?
The other weapon of choice of conservative governmentsin times of crisis is to cut taxes. This is probably the most dangerous of all choices. First, it does provoke saving up instead of spending ; unlike a wage increase that adds to the size of your monthly budget, a tax cut is effectively felt once a year, which is already bringing a lot of inertia to the stimulation, and you cannot precisely plan its importance until you get it. Consequently, you can’t prepare a use for it other than garnishing your savings account, even more so if you get one big sum at a time, good for your interest rate. Also, tax cuts are often used to the advantage of the rich, ie those who spend a lot of actual value for the same percentage as the middle classes for instance, who won’t see that much of a difference if you only rely on tax cuts. The rich are not the ones making the economy work, middle classes are, so it really amounts to a gift. Finally, by getting rid of a source of income, the State is putting its future in jeopardy : once the crisis is gone, it is unlikely that taxes will be reimplemented, suppressing the State’s capacity to act, and build up strength for the next crisis, as well as leaving the richer classes richer, and the gap between the different levels of the population wider than before, with all the consequences it brings.
So, what comes out of all that ? If you stay in party politics, conservative governments and parties, dominating many political landscapes, say they are against spending and denounce stimulus plans, while spending money, and lots of it, but for themselves, through public works policies lined with « pork barrel » spending, and tax cuts for the rich, with whom they share many interests, electoral and ideological.
If you go beyond just party politics, the bigger picture reveals class interests, and class struggle. Not in a direct opposition as can be seen at different times, but played indirectly through the wounds of our economies. Those who point the finger at stimulus plans, in the definition of them we have accepted in the first part of this little explanation, while denouncing insiduous socialism are wrong, and they’re not.
They are wrong because a stimulus plan is not socialism. It is just a band-aid, homeopathic socialism if you will, and many conservatives do know it for they use it here and there to cure capitalism’s hereditary ills, knowing it will not bring about real change on its own, in turn knowing that their interests and the economic and social relations necessary to their survival and them staying in power won't be threatened at all.
But they are right in the sense that a Keynesian approach to the crisis does reveal capitalism’s inner faults, these faults that will create many more crises in the years to come, while showing in a case study sort of way that socialism has the answers to correct them. And that socialism’s fundamental principles work to suppress the need for more stimulus plans, as they attack and cure the very ills that brought us in the ditch in the first place.
Today, we reach the very end of this series treating of the relevance, qualities and potential flaws of Keynesian stimulus plans aiming at up-starting the economy through an increase in demand, to put it but in a few words. In the previous entry, which works with this one it is true, we saw that 'public works' policies were outdated and missed the target when it came to solving a crisis like the one we are going through today. In this last entry we will see that tax cuts present the very same flaws.
Are tax cuts the equally efficient mirror image of a stimulus plan ?
The other weapon of choice of conservative governmentsin times of crisis is to cut taxes. This is probably the most dangerous of all choices. First, it does provoke saving up instead of spending ; unlike a wage increase that adds to the size of your monthly budget, a tax cut is effectively felt once a year, which is already bringing a lot of inertia to the stimulation, and you cannot precisely plan its importance until you get it. Consequently, you can’t prepare a use for it other than garnishing your savings account, even more so if you get one big sum at a time, good for your interest rate. Also, tax cuts are often used to the advantage of the rich, ie those who spend a lot of actual value for the same percentage as the middle classes for instance, who won’t see that much of a difference if you only rely on tax cuts. The rich are not the ones making the economy work, middle classes are, so it really amounts to a gift. Finally, by getting rid of a source of income, the State is putting its future in jeopardy : once the crisis is gone, it is unlikely that taxes will be reimplemented, suppressing the State’s capacity to act, and build up strength for the next crisis, as well as leaving the richer classes richer, and the gap between the different levels of the population wider than before, with all the consequences it brings.
So, what comes out of all that ? If you stay in party politics, conservative governments and parties, dominating many political landscapes, say they are against spending and denounce stimulus plans, while spending money, and lots of it, but for themselves, through public works policies lined with « pork barrel » spending, and tax cuts for the rich, with whom they share many interests, electoral and ideological.
If you go beyond just party politics, the bigger picture reveals class interests, and class struggle. Not in a direct opposition as can be seen at different times, but played indirectly through the wounds of our economies. Those who point the finger at stimulus plans, in the definition of them we have accepted in the first part of this little explanation, while denouncing insiduous socialism are wrong, and they’re not.
They are wrong because a stimulus plan is not socialism. It is just a band-aid, homeopathic socialism if you will, and many conservatives do know it for they use it here and there to cure capitalism’s hereditary ills, knowing it will not bring about real change on its own, in turn knowing that their interests and the economic and social relations necessary to their survival and them staying in power won't be threatened at all.
But they are right in the sense that a Keynesian approach to the crisis does reveal capitalism’s inner faults, these faults that will create many more crises in the years to come, while showing in a case study sort of way that socialism has the answers to correct them. And that socialism’s fundamental principles work to suppress the need for more stimulus plans, as they attack and cure the very ills that brought us in the ditch in the first place.
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