Thursday, February 21, 2008

Obama's Economic Advisor: Austan Goolsbee

At the heart of Barack Obama's economic plan, is a University of Chicago professor, Austan Goolsbee, and graduate from Yale in 1991. In a world of economics, Goolsbee is one of the very few left-leaning economists. He believes that "rejiggering" the U.S. tax structure away from business incentives will have less of a debilitating effect on our economy than it is believed by his conservative peers. And, he believes that more is to be gained in strengthening our economy if we take the money away from business profits and put that money into education and into the hands of the middle class. Certainly, this is a message that plays well to the populist Democrat who detests big business and who supports the "special interest" of the teacher's unions and the various forms of liberal-leaning education in this country. He, also, believes that "free trade" agreements, such as NAFTA, don't improve the economic situation in America. This is another economic message that plays well to the "labor unions" who believe jobs have been lost to free trade.

George Will once dedicated an article about Goolsbee in October 2007: (See Full Story).

I guess if Barack Obama is elected President, the economic fate of this country will be placed in the hands of a somewhat "maverick" economist who has been practicing his craft for about 16 years. And, if he gets his shot, we'll see if his belief in pro-social and pro-progressive economic policies and less pro-business benefits will actually work. If he is right, then he will turn conservative economics on its head. Of course, if he is wrong, the business and tax structure in this country could suffer from serious and unrecoverable damages. And, it should be pointed out that Goosbee's craft, economics, is more an "art" than ever being a purely practical science. Much of economics is purely theoretical, and, except for the "law of supply and demand", is subject to theoretical debate. When I was taught economics, there was belief that price stability was more important than trying to achieve full employment. In fact, levels of 6% unemployment were thought to be "full employment" and anything below that would probably result in runaway inflation. During both the Clinton and Bush Administrations, we have been at levels of unemployment that were below 5% with "no" apparent and abnormal levels of inflation. So much for that theory!

Over the years, I have become less a believer in "economic theory" and more of a believer in practical economics. For example, let me point to a small, one-store coffee purveyor that was founded in Seattle, Washington in 1971. That company was Starbucks. What if the taxes on that company where higher and the resulting profits were lowered? Would it have even survived and expanded to become a business that now employs nearly 172,000 tax-paying and employed workers? My guess is that it may have gone the way of a lot of start-up businesses: bankruptcy. At the very least, higher taxes would have taken more money "out" of that business and prevented it from expanding as rapidly as it did. That's just plain reality and not theory.

Obama/Goolsbee believe that there are a trillion dollars of tax loopholes that business in America are taking advantage of. They believe that if business pays higher taxes, it won't break this economy. They believe that this money would be more productive if given to the middle and poorer classes in the form of something like a $1000 tax break. At the heart of this belief is that $1000 being put into the hands of the consumer to buy more things, will stimulate the economy "more" than if businesses had that money to spend on "CEO" salaries. And, business expansion will result from more business and not from tax breaks.

I think that they are right in the belief that tax rebates and tax breaks "will" give the consumer more power. And, some American businesses will benefit; but, only marginally. The real benefit will be to foreign businesses. Even if the American consumer spends money at an American company like a Target or a Wal-Mart, it will, in most cases, be for products that have been made in some other country. Buying American doesn't guarantee that the money will stay in America. Many of the supposed American products, like Nike shoes, aren't made in this country! There is hardly anything in the areas of clothing, electronics, household appliances, ceramics, etc. that isn't made overseas. And, by applying a heavier tax burden on American business, we seriously disadvantage American business and, in turn, make their foreign competitors even stronger.

Simply making cash available to American consumers is not the answer for American business and our economy. In order for American businesses to create jobs and to compete for those dollars, they need to have lower costs. This will result in lower prices and will help divert consumer dollars away from cheaper foreign-made items. Higher taxes won't do that. While I don't have the credentials of Goolsbee, my simplistic guess is that his economic plan will be a disaster. My guess is that it will accelerate the loss of high paying, manufacturing jobs to overseas businesses. And, my guess, is that we, as a country, will continue to become a service industry economy; as opposed to a manufacturing economy. Further, our weakened U.S. businesses will be subject to reduced values in our stock market and, consequently, become subject to increasing takeovers by foreign companies. This will accelerate to a level that has never been seen before. You need only look at our auto industry to know this is true. GM, Ford and Chrysler are all sustaining heavy financial losses and losses of market share as a result of foreign competition. Companies that lose money don't pay taxes, and these auto companies haven't had profits and paid taxes for quite a while. And, those American auto company jobs are quickly moving to everywhere but America.

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