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Inside the Market

12/13/2010

With the latest Tax Cut initiatives being labeled as yet another stimulus, it appears this is yet another band aid being applied to the economic laceration that is not healing but is getting worse.

With the announcement of an extension of the Bush tax cuts and additional simulative initiatives which provides more cuts to the ultra-rich introduced and OKd by President Obama, many have labeled the win a simulative measure to the sputtering economy.  Once again, pure financial measures, comparable to that of QE initiatives, are not the answer to what is transpiring in the US economy (with a particular focus on continued high unemployment).   

To clarify our feelings on the extension of the tax cuts, we feel the extension of the cuts was a good move, however the increase cuts for ultra rich are not and the overall extension in general is not simulative to the economy.  In fact, the entire tax cut is not so much a stimulus but rather just an avoidance of restrictive policy that would have transpired and been negative for the economy had taxes been increased.

The US is experiencing a structural problem which is a direct result of globalization and the outsourcing of jobs to low wage regions outside the US.  Keynesian or Monetarist theory will not work regarding this issue, but rather governmental structural reform will.

So before you get excited about the tax cut extension…don’t.  It’s not going to change the shape of the economy much.  If you want a nice but long explanation of the problems plaguing the US, just listen to the footage of Vermont’s Bernie Sanders.  It took him a long time to get his message out, but his description of the root of the problems plaguing the US is very sound.