Part of what got us into the current financial crisis is our ability to suspend common sense and think that if the experts say it makes sense – then it makes sense. It might be time for us to return to our own common sense, and to remember that, if something does not make sense, there might be a reason – no matter what the experts say. For instance, if you purchase a home with no money down and no credit check, with a mortgage that requires only that you pay interest, common sense might lead you to question whether this transaction made sense.
The longstanding failure to use our common sense, which got us into this mess, continued this past week.
First, of the three people nominated by President Obama for his Cabinet who have tax issues, the one who was confirmed, Timothy Geithner, is secretary of the Treasury, the department that oversees the Internal Revenue Service. The other two, former Sen. Tom Daschle (nominee for HHS) and management consultant Nancy Killefer (nominee for Chief Performance Officer) retracted their names this past week.
Many think that Geithner should resign or be fired. But I’m trying to look on the optimistic side, so let me just say that his appointment provides an opportunity. If the tax code is so confusing that even the future Treasury secretary could not comply, then the IRS code must be simplified. Possibly Daschle and Killefer can help Geithner do just that. It defies common sense to believe that if the person in control cannot follow the directions and file their taxes properly, that others can. Leadership begins at the top.
Second, the stimulus package under consideration in Congress is based on the theory that we can spend our way to prosperity. I have been trying to make this same pitch to my husband – but when I do he looks at me as if I have lost my mind, and my common sense. The fact is that the timing of the fiscal stimulus will be much slower than anticipated, and its multiplier impact is unknown.
To achieve the goal of increasing private-sector employment and productivity, Congress should provide businesses with tax credits for a portion (or all) of the net new hire payroll cost that they add from today until the end of 2010. Small businesses know how much they pay in taxes. Big businesses spend millions of dollars finding ways to lower their tax bill. If businesses can use money to hire a person to produce a good or service that will grow their businesses instead of paying taxes, they will.
With roughly 155 million people in the U.S. workforce, and a 7.5 percent unemployment rate, the $800 billion could be used to put the unemployed to work. It equates to more than $68,000 per unemployed person.
Third, the provision that "manufactured goods" purchased with stimulus money, are to be made in the United States is a clever slogan. However, when making policy that affects international trade – it is imperative to think about the potential ramifications.
As Dr. Ray Hill, who teaches finance and economics at the Goizueta School of Business at Emory University in Atlanta, noted in an e-mail exchange, “The result is that the "buy American" provisions will only be netted out by reduced demand from abroad and world economic activity will shrink further. It would be a huge tragedy for us to repeat the protectionist mistakes that we (and other countries) made in the 1930's that worsened the Depression.”
Common sense might once again lead us to reconsider a direct job stimulus program versus restricting trade. More U.S. jobs would mean more goods and services to sell to all countries, including to China and the U.S. markets. We need to continue to open up trade and become more competitive in the global market.
The U.S. Gross Domestic Product (GDP) is a measure of our nation’s economic health. In 2006 and 2007, real GDP grew 2.8 percent and 2.0 percent respectively. In 2008, GDP grew 1.3 percent with the last two quarterly figures reflecting a decline in economic activity (-0.5 percent, -3.8 percent).
GDP can be increased in two ways: by increasing real output or through inflation. To increase the real income of a nation, there has to be a real increase in real goods and services valued by customers, businesses, governments and foreigners. And who produces this additional output? Americans do. Let’s put them back to work.
Going forward – let’s apply the common sense test – after all, uncommon sense is what got us here.