The James home, Knoxville Biz.
Wisconsin Governor Scott Walker is trying to stimulate the economy by eliminating corporate income taxes and regulations on businesses and cutting taxes on wealthy people (click here or here). These kinds of activities do stimulate GDP. Here’s how.
Wealthy people, like Lindsay Lohan, Brittney Spears, Mel Gibson, and Charlie Sheen have people, including paparazzi and media people following them around. That costs money. They do things in a spectacular way, and when they do stupid things in a spectacular way they have lawyers get them out of trouble. Economists call this “multipliers.” The lawyers, paparazzi and media folks need to eat, sleep, rent hotel rooms, etc. And they don’t camp out and chow down on toast, water, and dried fruits and nuts. Celebrities often require high powered consultants from the sex and pharmaceuticals industries. When they trigger rapid increases in the entropy of hotel rooms, by “trashing” them, carpenters, electricians, decorators, architects and others need be hired to restore the room – all this costs money, and stimulates GDP.
When regulations are lax or eliminated businesses regulate themselves. This stimulates GDP. Consider the recent GDP stimulus of Wall Street, when those now-legendary credit default swaps raised real estate values (until they crashed). Similarly, when industries are releived of the burden of environmental regulations, they create products which increase GDP and pollution which is not counted in GDP. When the pollution is cleaned up, at taxpayer expense, the GDP again increases. We see this dramatically in Tennessee, at the site of the Kingston Steam Plant. When a flood released 1.2 billion gallons of toxic coal ash sludge from the coal-fired power plant, December, 22, 2008, the cleanup costs were added to the bills of the people who buy power from the TVA.
Note that there are people who think about ecological economics understand the costs of cleaning up pollution, and other things they call economic bads, should not be considered a component of the health of an economy. They favor the use of indices like the Genuine Progress Indicator, GPI (See: The problem with GDP, Joe Stiglitz on Youtube, or this wiki).
In words Alan Greenspan might use, “with a syncopatedly integrated interperiodic boom-bust bubble-pop series of microeconomic events pursuant to macroeconomic cyclical patterns we will sustain high employment with simultaneous episodic high unemployment, causing elevated productivity and de-elevated wages, giving many people virtually sufficient purchasing power to buy most of the necessities they need to live productively, work their entire lives, create terrific negative net worth, also known as debt, and give their children some of the education they will need, unless or until they get sick or incapacitated.”
Wisconsin Governor Scott Walker is trying to make Wisconsin business friendly by eliminating corporate income taxes. What he could do is use the power of Eminent Domain to take over a few mansions and then give them to Lohan, Spears, Gibson, and Sheen. Those four, by themselves, could stimulate the economy, especially in a small state like Wisconsin. Imagine what they could accomplish working, or playing, together. The synergies would be terrific. Walker could recreate Madison as “The Hamptons North West” or “Hollywood North East” – he could pay the Post Office for special zip codes, for example, 90210-A and 11937-B. Their lifestyle would stimulate the economy in a significantly more dramatic, and probably less unsustainable manner than cutting taxes for Koch Industries and rich folks and their hangers on who would jet off to Paris, the Riveria, or the real Hamptons and stimulate the economy in those places
The Governor is probably legally required to balance the budget. Should he do this by raising taxes or cutting spending and cutting taxes and regulations on corporations and wealthy people? If he cuts taxes and regulations, and those corporations pollute more than would if the taxes and regulations were in place, then the citizens will have to pay the costs of cleaning up the mess. As described above in the description of the Tennessee coal ash flood, this stimulates GDP.
Walker seems to want to eliminate health and other benefits from government jobs, except for police (and no doubt the Office of the Governor) in order to balance the budget and continue to allow him to cut taxes. This will shrink the GDP. Greenspan might refer to this as “Negative Growth.”
Roosevelt and Keynes proved that government spending stimulates the economy. Walker should be raising taxes to cover spending. Cutting wages and benefits stimulates employees to leave. The long term impacts of destroying your education system are on display in West Virginia and Mississippi.
On the other hand, maybe Gov. Walker and Charles and David Koch brothers are right. If there are no jobs for the young people of Wisconsin it may be better to keep them uneducated. If they get educated they might get uppity, they might demand “Rights.” As the Taliban in Afganistan knows, if you want to keep people in line, it is easier if they have no education. Former President Hosni Mubarek found this out in Egypt. The revolution in Egypt was led by young educated young people who don’t have jobs. (NY Times: click here, here, or here). The people in China have jobs and are not revolting – they’re too busy working 7 days per week and trying to save some money. An educated citizenry demands its rights. If you don’t want your citizens to demand their rights, keep them in the dark.