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“Real” Stimulus

08/24/2010

Last year, Congress approved a stimulus package of $787 billion.

Since Q2 of last year through June 30th of this year, profits of the S&P 500 have risen 52%. Productivity has soared to 3.5%, compared to 1.6% in 2007 and only 1% the next year. Still, the private sector has added only 630,000 jobs this year. We need at least 125,000 monthly, just to stay even, without even reducing overall unemployment. We desperately needed a minimum of 875,000 new jobs in the last seven month, not a mere 630,000.

Today, the amount of cash on the balance sheet of the S&P companies is almost $2 TRILLION and rising. It will soon be three times greater than the “stimulus” package by Congress.

Yet, it is not the function of business to produce jobs. They will only hire when the incremental cost of a new employee is less than the increased revenue offered by end-users from their increased demand. In other words, each new hire must produce a net gain in revenue.

Supply-side economists say more hiring would occur if we decreased income tax on high-income owners, giving them extra money. The problem is that their increased tax savings would simply be added to their existing cash levels. This is a situation where decreased employment taxes on employees & employers, i.e., social security and unemployment taxes, would decrease the incremental cost, making it cheaper to create new jobs. Cutting the right taxes is more important than simply cutting taxes.

Now, that would be a “real” stimulus!

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