Stimulating thoughts

As governments of the world are walking around in circles to get some sort of economic stimulus package passed and as we anticipate what John Key will come up with in the next two weeks, I thought I would share some little tid-bits from the Rachel Maddow show the other night and a few thoughts of my own.

Key is reportedly going to announce a $500 million infrastructure package that will target a couple of specific roading projects, school property upgrades and insulating state houses - all good things. But beyond this the largest part of his stimulus package will be tax cuts... and yes they will be the tax cuts he already announced in the campaign that overwhelmingly favoured those on higher incomes. We need to change that balance.

The reason for these stimulus packages seems to have been lost along the way. Basically what has happened is that people aren't buying stuff, which has the flow on of meaning other people will lose their jobs, so the government needs to step in and spend to effectively save those jobs.

Rachel Maddow had a really good piece the other night comparing different types of spending which was based on work by Moody's.
Every $1 spent on tax cuts creates $1.02 of economic activity
Every $1 spent on infrastructure creates $1.59 of economic activity
Every $1 spent on food stamps creates $1.73 of economic activity.
(Source: Moody's Economy.com)

In short people dont necessarily spend the tax cuts they get so it is ineffective as a stimulus measure.

We don't have a lot of cash in New Zealand so frankly we need to be targeting what we have on the most effective measures and that does not include tax cuts.

Why not expand that insulation programme back to what it was and roll out to as many homes as possible? Hell why not look at investing in solar water heating for state houses? These are both worthy investment ideas that would actually have valuable flow on effects by creating healthier households and lower power bills.

Did you know most of our buses are built and designed in Christchurch? Why don't we take this opportunity to invest in public transport by upgrading our fleet nationwide? In doing this we could also do wonders for our green ambitions.

Families tend to spend more as they have higher costs, so instead of tax cuts - why not expand Working for Families again? As Moody's said, food stamps are the best kind of stimulus and expanding WFF is probably the most politically palatable idea along these lines in the New Zealand context.

Our skills and training gap remains and we still have so many people with poor literacy and numeracy skills - so if businesses with low skill workers are about to crumble or lay off staff, then how about considering a 4 day week for workers at some workplaces and on the fifth day have the worker undertake skills training being paid for by the government. Under this the worker would keep their job and undertake training in an area of need. This could offset the need to lay off staff as wage bills would be decreased and it would provide a much needed investment in skills.

There are tons of other ideas floating around as well, but my point is that the old argument of tax cuts is not suited to this particular situation and right now we need to be making smart investments in our people and economy.