All posts edited by Madeline Ricchiuto.

Wednesday, March 13, 2013

US Sequester, Economy, Etc. - Idea

So I know I already wrote a post on this but after some time thinking about this I thought I'd put out an idea to all of you wonderful people. We all know that the US economy is in a bind. It has been for quite some time now. I think it is fair to say the economy is in a better state now than it was 4 years ago (if you disagree...well I'm sorry). That being said, the US economy is no where as strong as I believe it could be.

Does anybody remember the reports from a few years ago that said that we (the US) were in almost as bad shape as The Great Depression? Since then it seems that we were not quite as bad off, but certainly we were in terrible shape. And people are still in 2013 saying that we are having the worst economic recovery since then.

My proposal is that we treat this like we did the Great Depression. Do people remember their history well enough for this? The New Deal sound familiar to people? It was a major factor in getting the US out of the Great Depression. It had 3 major principles (the 3 "R's") but I want to focus on just one of them: Relief.

The relief part of the new deal has to do with jobs. Jobs is the big area that everyone is talking about right? Jobs are everything. All the tax reform and everything can help oh so much, if people aren't able to get jobs. So what was the relief part of the New Deal? It had everything to do with (gasp!) public works projects. That is what my idea boils down to. Why aren't we looking into creating such things?

During the New Deal time, and focusing on relief the government created jobs by building things. Things such as: schools, hospitals, airports, government buildings, roads, and (I think most relevant) RAILROADS. I say railroads are most relevant because most airports seem well maintained, and while I recognize there are many schools and hospitals that can use work, I think the most jobs can be created if we focus on the railroads.

I think almost everyone can agree that the current railroad system in the US is pitiful compared to other developed nations. Just look at Europe. The UK has high speed trains going everywhere. There's the TGV which goes to Paris. China and Japan both have high speed trains as well! Why are we behind here in the US?

We have Amtrak as our high speed train system, and it (sometimes) runs at 100mph. I have riden Amtrak from NJ all the way down to Florida, and I know from experience that the speed is much slower once you pass Washington DC. Not too mention it is almost as expensive as flying; especially if you want to be in a relatively comfy seat.

My proposal is simple: Replace Amtrak and create an efficient (energy wise and economically) train system running throughout the Eastern US (at least). Ideally I would say create a countrywide network (see image below). Imagine how many jobs would be created!

First we'd have to rip up those tracks we currently have since they are not built for trains to run over 120mph (roughly - don't hold me to that exact speed). Thats jobs for lots of people! Before you say it, yes its not something that people with a degree may want to do, but isn't it better than nothing? Even if its those who didn't go to school, its a great plus (they need jobs too!).

An idea for high speed trains in the US
(include the grey lines in the North West)
We also need contractors, and engineers and architects, etc! We have to design tracks that would hopefully not disrupt towns and cities, and new stations etc. These are skilled jobs, requiring college grads! Jobs, jobs, jobs. This plan would also require (or at least encourage) opening steel factories to create to new tracks for the trains.

All of these new jobs would encourage the growth of our economy by putting money back in the pockets of the consumers, instead of those 'job creators' we keep hearing about. And with the new train system, I wold think more people would be open to taking trains around the country (assuming the pricing goes down some) which is an increased market and good for the economy.

Now obviously this won't solve the economic problems. I also firmly believe in a more progressive tax code, like raising taxes on the rich some points. Closing loopholes as Republicans suggest also would be a great idea in my opinion (but not to the exclusion of tax increases)! And as many people also say I take the position of reevaluating the current budget, making cuts where necessary (I'm thinking the military, but not exclusively).

I think an important factor is to find a way to make our system far more...equitable. Don't let CEO's make so much more than their average employees. Don't let the top 20% have 93% of the nations wealth. I think these are things that need to addressed and if done so properly can lead to a much stronger and more stable US economy.

But I think my idea of a train system is a good start to all of this.  ;)


  1. Where would the Federal government get the funds for this project? It already spends more money than it generates. Employing more public sector workers in such a costly initiative will only create more debt. The reason that the New Deal worked so well was because the Federal Government was not indebted to the rest of the world as it is today.

    I like the idea, but at this point in time, it just seems implausible. The idea works in theory, but not it wouldn't hold up in a real world situation. This would have a similar effect as the stimulus package: none; except an expansion in the debt. The US's main concern should be driving down the debt by reducing government spending especially in military and entitlement programs. Once the debt and deficit are under control and the US dollar has regained some strength, the US can borrow to undertake this project (which would be sick, since Amtrak is awful).

    Also, in your final paragraph, are you suggesting that the US government should regulate salaries and wages?

    1. I don't see your reasoning as to why it wouldn't hold up in a real world situation. Its not like this hasn't been done before and we haven't seen results. And I accept your point that obviously the government is in a different position now than at the time of the Great Depression but I don't see how being indebted to other countries more would change this.

      My point is simply this: Public Works Projects have been demonstrated to work at boosting the economy. They provide jobs for both skilled and unskilled workers which quickly put money in the hands of consumers. With more jobs and more participation in the economy the strength of the dollar grows (which has already grown in the past 5 months). Even if we were to implement the project now; yes it would increase the debt, however it would greatly boost the economy which in turn builds on the power of the dollar.

      I agree the debt and deficit are major problems, but they aren't sole problems with our economy and to focus solely on them seems flawed. As far as when the project would be undertaken; I would say it could be immediately or even after tax/budget reform.

      In regards to my final paragraph, the US government already does that. This isn't some radical idea. However, in the sense that you are using the idea of regulation (or at least how it seems you are) no. I do not advocating the US government dictating salaries and wages. Regulating? Yes. Putting caps? Maybe. Higher taxes for higher salaries? Most definitely.

  2. The idea I was moving toward is that the cost of the project will require the U.S. to borrow more money, or print money. Neither of which are good ideas. Increasing consumption, which this project would inevitably do, is good and will grow the GDP. The caveat, however, is that as all of this would only be in the short run. The positive effects of the New Deal, as some economists and historians have pointed out, were short term. Those employed either lost their jobs once again or were employed by the military industrial complex, which boomed after WWII.

    The idea is plausible, but to expect this help the economy in the long run is incredibly optimistic. The best bet the young generation has is to wait for baby boomers to retire, which will leave more vacant positions than their generation can fill.

    The only way to provide stable jobs is to generate a strong private sector. The public sector is funded by taxes from the private sector, as I'm sure you know. The government, if it is serious about long term planning instead of the political scare tactics it insists on using, should be helping the private sector. To solve unemployment, the government could consider lowering some of the union wages or even the minimum wage (even though it is below CPI at current level). Manufacturing has left the US because labor is cheaper overseas. If the wage is lowered at home, the price of home goods will fall (an example would be the steep fall in gasoline prices in 2009).

    The last point I guess is based more on principle and can't be argued. I just believe that the government has no place to cap wages. Once they can cap it, where does it stop? In an free economy, people make the money their superiors are willing to pay them (which is directly tied to productivity). Are their salaries disgustingly high? Yes. But the government has no right to cap their income. High taxes on high earners? Yes. But the line needs to be drawn much higher. A family of four that makes $200,000 in the northeast is not "rich", especially after a 40% income tax. That middle class should have the break, since they are ones that engage in the most consumer spending.

    1. Firstly I'd like to thank you for the commentary. Its refreshing to have a dialogue rather than posting to the void of the internet. I'd also like to thank you for your respect.

      So to address what you said: Yes this is not a long term fix. As I said in the original post, this is in now a solution. Its a temporary fix, and even that it cannot do completely on its own. But it will stimulate the economy which can lead to longer lasting positive effects.

      So lets use the rail example: Building it as I said employs both skilled and unskilled workers. So it would allow those who would not otherwise be able to get a job to do so. And those who are struggling (college graduates) to also get jobs. This in turn puts more money into their pockets which they then use to fuel the rest of the economy via consumerism. Now obviously the impact depends on how many people actually get jobs and then how many go out and spend that money.

      So this may have semi-long term effects, but no it wouldn't have any truly substantial long term effects. The idea behind these plans is to jump start the economy. Boost the value of the dollar. Provide work to those who need it. The long term effects can only come from reform. Which I proposed in the form of raised taxes, loophole closures, and a tighter budget. Those are what will truly create long term effects (assuming we can keep those reforms).

      I think many people (honestly from your post it seems you too) seem to want to draw this line and say that the public sector cannot or does not influence the private sector. But at the same time they want to say that the private sector affects the public sector. I see it as a two way street.

      I can't say I like the idea of the younger generations being forced to wait for the latter generations to retire, or the idea of lowering the minimum wage (which as you noted is already below CPI).

      If the government can help create jobs then I think in such a case as this, it has a responsibility to its populace to do so. Otherwise those who are just graduating will hardly be able to sustain themselves and you will have a generation that has been cast to the gutters (newer college graduates will take the positions when the baby boomers finally retire).

      The latter option seems extremely unjust to me. Keep in mind there are already MANY people in the US who can't afford to have a decent housing, or clothes, or food. I don't see lowering the minimum wage as helping that. If anything that will exasperate the problem. We have seen it in this country already. For profit means exactly that. Companies are out not to help their employees but to make a profit in any way possible. Thats why unions started in the US in the first place. So i disagree that in a free economy (which we have tried to have in the past) that pay is directly tied to a person's worth. Its tied directly to how much a company can profit.

      Now as far as the last point goes. I am not sure I agree with wage caps, as I said before. However I do agree with the gradient tax system and if you are making more money then you ought be taxed more (which effectively levels out some of the income).

      As to your point of a family of four etc, I completely understand. I am from a family of six, that had a net household income less than $200,000. We lived in the northeast, in an upper-middle class town too. So I understand that they may not be 'rich' but that is only by their regional standard. Now I am no tax policy expert but, I don't see a way of putting all of this into the tax code (not for income tax). I mean such things are already taken into account when you file your taxes and receive tax breaks. I'm also not so sure about your quote of 40% income tax on $200,000.

      Sorry about how long this was. It's essentially another blog post.

  3. Thanks for all the clarification Mike. It's really great to see people thinking about these things, and the best way to confirm your beliefs and ideas is to discuss them. Thanks for putting up with me. Love the blog, keep up the good work. :)

  4. btw gradient tax system is EXACTLY what we need.