The Largest Tax Break In History

We have been conditioned to think of “tax breaks” as something other than “welfare checks.” When the government wants rich people to do something, rather than simply require them to do it (which would be too presumptuous), it gives them the money to do it and asks them nicely to get on it. Which they generally never do.

Giving the richest Americans tax breaks for the past 8 years has been defended as necessary to ensure adequate job creation. Well, we taxpayers upheld our end of the bargain – we gave them the money. But then the rich people didn’t use it to create jobs. Businesses weren’t invested in, factories weren’t built, workers weren’t hired. Instead, the money sat around in various “safe” investment vehicles, accumulating. Until eventually, like any under-utilized asset, the money began to lose its value. Net result: rich people took our money and frittered it away. And like Ronald Reagan’s beloved and largely mythical welfare queens, they did in fact spend it on lavish lifestyles and not much else.

One might think that having watched this strategy fail again and again that at some point enough people would yell “stop” and bring this nonsense to a halt. But one would think wrong. The current “bail-out” could just as well be called a “tax-cut” for Wall St. And just like the previous trillions in tax-cuts, the money is to be handed over with no strings attached. Create jobs or don’t. Invest in businesses or don’t. Lend or don’t.

I’m going to go out on a limb and suggest that the money will not be used for any socially useful purpose. Not for creating jobs, not for investing in businesses and not for lending. And the reason is more than just that this has never worked yet and is therefore unlikely to work this time. There’s a deeper root cause that is one of the Things We All Know™ but don’t speak about.

VC’s, investment bankers, traditional banks, mortgage lenders and other hoarders of capital (even rich uncles, the so-called “angel investors”) are not investing and lending and have not been for some time. The reason is not because they don’t have the money. Money they’ve got (and will shortly have in some quantity). What they lack is credit-worthy borrowers.

The current crisis was originally billed as a “sub-prime lending” crisis. Then a “mortgage crisis,” and now a “credit crisis.” (Actually, the credit crisis was already well underway concurrently with the so-called mortgage crisis.) But these names all mask something I think deep down We All Know™: that the nation’s borrowers do not earn enough to pay any more loans back. In fact, they are already saddled with more debt than they can service.

The real crisis is a jobs crisis. We have arranged our society’s resources in a way that benefits too few people at the expense of too many. We need to re-direct resources toward activities that will create jobs. My man Obama wants to do this immediately I the energy sector, which is of course a good idea. But I think he’ll find when he gets his head around this that what he wants to do in energy we’ll need to do in sector after sector. From food to cars to education to healthcare to consumer goods to services. All of it needs to be re-structured so that Henry Ford’s old idea – that his workers need to make enough money to be his customers – in once again true. And once we’ve done that here, we need to export that reform across the world.

That ought to keep us busy for the next half-century.

There is no shortage of work that needs doing. There is no shortage of raw materials. There is no shortage of labor. What’s been lacking is the leadership to ensure that these inputs are organized and managed in a renewable and productive way for the benefit of the maximum number of people.