Lisa Simpson
Aug 10,2009
In: Finance

Stimulation Has Now Spent Itself Out as the Economy Falters

The government is now admitting that it had not gauged properly the intensity of the economic crisis. The reality is that it had overestimated the strength of the stimulus packages. During the eight years of Bush the debt because of stimulation increased by $5 trillion. In the same time span the debt of households shot up by stimulating the economy an extra $7 trillion amounting to a total of $12 trillion extra stimulation. The net result today is that jobs are being lost en masse. Stimulation seems to have spent itself out as the economy continues to dangerously falter.
Outsourcing jobs coming from globalization has led to huge job losses. Globalization is just another name for trade wars for making a grab for markets. Producers, typical to their nature are just hunting around for countries where it is cheaper to manufacture. Japan initiated this move at the close of World war II by closing markets, subsidizing products and exporting goods at low prices near to the cost. This enabled Japan to make up the profit affected by the closed market. It was a smart move as it worked. Today Toyota is number one while GM declared bankruptcy. China is now the best example of a closed market and regulated labour.

Two year previously Alan Blinder of Princeton University sounded alarm bells. He said that each year because of outsourcing, America was losing nearly three to four million jobs. The entire economy seemed to be off-shored! What is now required is that the economy should come out and start engaging in trade wars but before it can do it USA has to set its own house in order – face the economic problems.

The Democrats are focusing on health care while the Republicans are worried about tax cuts and deficit budgets. If corporate tax is replaced by 5% VAT then one stone will kill all the birds – taxes will be cut, health care taken care of and an end put to deficit spending. Replacing the corporate tax by a mere 3% VAT amounts to tax neutrality.

On an average the VAT of industrialized countries is 17%. Replacing corporate taxes in America with 5% will slice taxes, finance health care, and remove corporate incentives for off-shoring. It will induce American business men to bring back home the dollars they have parked abroad while making USA a magnet to attract foreign investment. Simultaneously it will promote exports and make imports expensive. VAT will also sniff out the offenders in the underground economy.