Tax Cuts Aren't Stimulus

The Finance Minister is an idiot. I'm going to put that out there now. He's also a liar and a crook, but that's a different story. This one is about how Jim Flaherty thinks that tax cuts are a form of counter-cyclical stimulus. He is talking about including tax cuts in the federal budget due at the end of January.

I'm sorry, this is a moronic move. The kind of tax cuts that Conservatives like are narrowly focused on the capitalist class, and emphasize trickle-down voodoo economics. Supply-side tax cuts are unequivocally not what we need in this economic climate. I don't think we generally ever need them, but that is, again, something for another entry, but we especially don't need them when our economy is staring massive over-production in the face. Providing tax cuts intended to increase capital investment is an inappropriate move in the current economic environment. If the Conservatives are bound and determined to have tax cuts in the budget, then cut marginal taxes for the lowest tax bracket, and maybe raise the basic personal exemption. This is the kind of tax measure that might be helpful. Those who would benefit from the measure are the people who live from paycheque to paycheque, and spend every cent they get. This money goes right back into the economy, and stimulates demand, easing the crisis of overproduction, without sacrificing jobs.

But I don't think tax cuts are the way to go right now. Tax cuts aren't a good method of counter-cyclical stimulation of the economy. Counter-cyclical stimulation, in the typical Keynesian mode, requires that the stimulation be capable of easing off when the economy no longer requires stimulation. Tax cuts cause a major problem in this regard, because in the current political climate it is very difficult to raise taxes, when the economy no longer needs the stimulation. We have seen a practical example of this in Canada. In the last election, Stephane Dion mused about the possibility of raising the GST back to 7%, and the howling across the country was deafening.

The best way to stimulate the economy is infrastructure spending. Infrastructure spending has five aspects that make it good for counter-cyclical stimulation:

1. It is capable of getting to work quickly, since most cities and counties have some kind of infrastructure project just waiting for funding to go into effect. An example is the Transit City proposal in the City of Toronto, envisioning many more streetcar lines to greatly increase the available transportation in the city.
2. It puts people to work, both in the immediate construction industry and in the feed-in system, creating a ripple effect across the economy. By putting people to work, more money is earned, and that helps to ease the overproduction crisis.
3. It stimulates demand for products manufactured in Canada, helping to keep well-paid manufacturing jobs in Canada.
4. Building infrastructure leaves something that will be useful for decades. A new subway line can be used for a hundred years or more (see London and New York), a new streetcar line for decades. Building infrastructure is a part of long-term economic planning.
   
5. It can be easily eased off when the economy recovers.

Obviously, infrastructure spending can't be the whole deal, but it is a far better way than idiotic Conservative tax cuts that will be secreted in bank accounts, and not put to work on products made in Canada. We need real stimulus in this budget.

Days Remaining in Bush Presidency: 14