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Capitalism 2.0: Spending

Posted on Tuesday, Apr 21st 2009

NY Times reports, “In a series of comments in recent weeks, Mr. Obama has begun to sketch a vision of where he would like to drive the economy once this crisis is past. His goals include diminishing the consumerism that has long been the main source of growth in the United States, and encouraging more savings and investment. He would redistribute wealth toward the middle class and make the rest of the world less dependent on the American market for its prosperity. And he would seek a consensus recognizing that an activist government is an acceptable and necessary partner for a stable, market-based economy.”

My instincts are with Obama that the chronic spending needs to stop, especially spending that has been based on credit, fostering a “living beyond ones means” philosophy. But that also means the artificial “growth” slows down. How do you keep the economy growing with that approach?

I think that investment in small business creation is one of the most critical pieces of the growth equation. But that requires less taxes and more incentives (for investment in job creating new businesses) on the savings of the upper middle class.

Another somewhat controversial point of view on wealth redistribution is that the rich and the upper middle class could be offered tax incentives to hire household workers (maids, cooks, gardeners, nannies) to generate another layer of jobs for the underclass and the working poor.

The wealth redistribution that Obama wants to achieve needs to happen through investment by the people who earn the money, and not by taxing the money from them, bringing it into the government, and then the government acting as the slow and inefficient central router that determines where the money goes. Well, as we have seen often in the past, it goes into earmarks and AIG bonuses.

Wikipedia has an economic class model that may be useful in discussing this. It says, the ‘rich’ represents only 1% of the population, the Upper Middle Class 15%, the Lower Middle Class 30%, the Working Class 30%, the Working Poor 13% and the Underclass 12%.

What I am suggesting above is that small businesses that receive investment from the top 16% of the population through proper tax incentives, can generate jobs for the lower 60-75%. As for the lowest 25%, plugging them into the household jobs category may be a very good idea. Their children then can get educated and start climbing up the ladder, and out of poverty.

This segment is a part in the series : Capitalism 2.0

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