California’s stimulus killer

Well we’ve done it again, took a long term federal plan and ripped it to shreds by the States short term actions.  What am I referring to you may ask?  I’m referring to the  recent changes in taxes throughout California and many other states across the country.

Just two days ago a series of new taxes began in California.  The new taxes include things like increased sales tax, increased gas tax, increased sin taxes and others.  Well what is the problem with that you may ask?  The state is broke and the economy is crashing and the only solution to this entire mess is to get more money from the california tax payers. Great huh!

So what happens now?  In the short term it makes sense; if everyone used to pay X dollars for an item now they pay X plus an additional 2.5% thus giving the state more money.  Wow what an easy concept!  However, in time this increase in tax will ultimately lead to an change in the average livestyle consumption throughout California.  Thus the real equation is not what I stated previously, instead it is; if everyone used to buy X amount of items they now by X minus 2.5%.

So if you used to buy 100 widgets per month now you only buy 97.5.  Wait, I thought the economy need stimulating?  How can the economy be stimulated if consumers are buying less?  This doesn’t make sense.  The worse news is that California didn’t have the highest sales tax increase.  For instance Illinois apparantly doubled their sales tax to somehwere around 15% (please comment if you know the real numbers).

The question I now have is “where does this stop?”  If the government is pumping billions of dollars into the economy and then taxing billions of dollars out of the economy are we any better of?  That’s not even considering the affects of deflation.

This just doesn’t make sense to me but I am not an economist, so I just hope that somewhere out there someone has considered this scenario more than I have.

Thanks

Damien
@DamienH

Taking the free out of free market

America, the land of the free and the home of capitalism.  The center stage of countless rags to riches stories filled with tales of business, innovation and determination.  Perhaps even the only place in the world where “it’s just business” is truly a legitimate excuse.   However, today more than ever we see the government playing God in our formerly free market and I believe there is more at stake than just our pension fund.

Looking over the course of the last two years the American government has pumped billions and billions of dollars into the economy.  At first it didn’t seem to have much of a target, a simple blanket stimulus package for everyone.  However, in time the bailouts became very precisely targeted, specifically towards large companies that had failed on numerous different levels.  Companies that I think had hit their downward spiral well before the thought of this recession had entered anyone’s mind.

I have no problem with the government assisting the private sector but it has to be reasonable, logical and duly sanctioned.  The bailouts need to accompany long term solutions with actionable plans for improvement, they should not be a final deathbed revival effort.  However, today it seems as though we continue to bailout terrible companies that have made terrible decisions.  Why are these companies afforded this opportunity; make poor products, follow poor strategy, overpay everyone….oh and by the way here’s a 10 billion dollar bailout just because your outdated and unmanageable company can’t cut it anymore.

If the government didn’t step in, terrible companies like Ford and Chrysler would have already gone under and been replaced by companies that are better, faster and smarter.  Perhaps these companies may have even been enlightened enough by their unassisted failure to reform their business.  Whatever the case may be we have to ask whether we are saving great companies or are we actually just protecting bad companies from their rapidly approaching demise?  If these companies couldn’t stabilize after decades of success and growth what makes us think that they are going to ever bounce back?

I know the mantra; we should buy American and be proud of American companies but what the hell happened to leading the way?  At what point did corporate America eat a giant slice of complacency and just say screw it?  Similar foreign companies are world recognized for strategy, operations management, efficiency and more.  Whereas American car companies are an international joke.  We pay our union employees 10 times  what foreign employees are paid and not only do we produce fewer cars, we produce cars that can’t ever rival their competition.

Let us not forget what the free market has brought us; high standards of excellence, innovation, competitive drive, talent abundance, rapid growth, strong development and most of all money.  The free market provided a life and death cycle for American businesses.  Once a company became old and incapable of fulfilling it’s duties it would ultimately be passed by a new company that was smarter and faster.  This cycle is the underlying force for American economic progress and it’s being disrupted by the government.

Could these bailouts ultimately be hurting us more than they are helping?  Are we debilitating our entrepreneurs and up-and-coming business by keeping these inefficient and costly behemoth’s around?  I think we’re just procrastinating the inevitable and that the delayed fall will be much bigger.

Damien
@DamienH