Tuesday, September 25, 2012
Thoughts on stimulus initiatives
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- Cox is a willing partner
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From the RoundTable blog
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Money is spent on tax cuts, infrastructure, jobs and education with no expectation it will be directly paid back. The money provided to General Motors was converted to shares in the company.
An impartial industry source, The Center for Automotive Research, calculated that the GM/Chrysler investment saved 1.5 million jobs.
That meant government did not need to pay unemployment benefits to those workers, and instead will receive taxable income from their earnings -- enough to offset the expected loss on the GM investment in a year or two and an income source thereafter.
Investments sometimes fail. We didn't call the space program a failure when a rocket failed. Solyndra was a well-intended attempt to grow an alternative energy business segment. Its loss was infinitesimal compared to typical venture capitalist results.
For example, venture capitalist Bain Capital specialized in leveraged buyouts of established firms. According to a Jan. 9 article in The Wall Street Journal, under Mitt Romney, of 77 businesses Bain invested in, 22 percent failed within eight years, and another 8 percent lost all of the money Bain had invested. Only 10 deals brought 70 percent of Bain's dollar gains, and four of those later went bankrupt.
Romney says he knows how to run a business and create jobs. But Romney ran a bank that invested in, or loaned money to finance, businesses. He did not manage those businesses. He never truly ran a non-bank business. And while Bain's investments overall made lots of money, companies they bought majority control in fared poorly. When specifically requested to release their job creations versus their job losses, Bain refused to provide any information.
Bain/Romney's major success was a minority investment in Staples. But Bain didn't build Staples; the original owner, Tom Stemberg did. Stemberg eliminated the middleman, the distribution link, and bought directly from the manufacturers. This enabled him to sell at much reduced prices. And later, he consolidated the business by acquiring many other competing firms.
Romney credits Bain's investment for creating 89,000 jobs at Staples. But Staples did not create a new business segment. That segment had been previously served, admittedly inefficiently, by hundreds of small businesses. Those not bought by Staples went belly-up, causing the loss of the jobs of the people who worked for them.
Also significant is Romney's record on jobs as governor of Massachusetts. According to federal data, at the end of 2002, just before he entered office, there were 338,000 manufacturing jobs in the state. When he left in 2007, there were 298,000, a drop of 12 percent. The recession had ended, the economy was turning around and job growth improved nationally. But for Romney's overall term as governor, the rate of Massachusetts job growth was only 47th of the 50 states.
Franklin D. Roosevelt and Ronald Reagan proved that the only way to end a bad recession is by serious government stimulus spending. But for the years 1932 to 1986 the average top bracket income tax rate was 77 percent, so that produced income that largely offset the spending.
Romney says the opposite -- keep the top increment tax rate low and cut government spending. However, he refuses to give specific details on what he will cut. In 2003, Bush's tax cuts lowered that bracket rate to 35 percent. And in the last 10 years, it did not add jobs. It just greatly increased the national debt.
If history is any guide, President Obama's stimulus plan and tax relief for only the brackets below $250,000 will provide better results in jobs and deficit reduction.