海角大神

Mitt Romney is smart enough not to join Newt Gingrich and Sarah Palin in using the proposed mosque at Ground Zero to to lauch a presidential bid. While Gingrich is busy comparing Muslims to Nazis (鈥淣azis don鈥檛 have the right to put up a sign next to the holocaust museum in Washington鈥�), and Palin is calling on New Yorkers to 鈥渞efudiate鈥� the plan (she subsequently corrected her word choice), Romney is offering an economic plan.

That鈥檚 a wise choice. Mitt knows Americans don鈥檛 care about mosques in Manhattan. They care about money in their own mitts.

Romney is intent on selling himself to America as the businessman who can turn the country around (sad to say, unemployment is likely to remain high all the way through November, 2012). Unlike Palin and Gingrich, Romney did, after all, run a business (yes, it was a firm that bought and sold companies and laid off lots of people along the way but, hey, that鈥檚 business).

So we should take Romney鈥檚 economics seriously. In today鈥檚 (Wednesday鈥檚) Boston Globe op-ed Romney attacks Obama鈥檚 economic policies for being ineffective and calls for what he calls a 鈥済rowth and jobs鈥� agenda. Here are the main points:

鈥� match U.S. corporate taxes with those of other developed economies,

鈥� preserve the Bush tax cuts for everyone, 鈥渆specially small business,鈥�

鈥� allow businesses to write off capital investments made in 2010 and 2011 rather than over time,

鈥� eliminate taxes on investment dividends,

鈥� eliminate taxes on capital gains and interest for households earning less than $250,000 a year, and

鈥� balance the federal budget.

Apart from the impossibility of simultaneously cutting taxes and balancing the budget without taking a meat cleaver to Social Security, Medicare, and defense spending (Romney delicately sidesteps this conundrum by urging we 鈥渞eshape government programs鈥� and 鈥渞estructure entitlements鈥�), his policies raise a more fundamental problem.

Call it the wet-noodle problem.

For Romney, the key to America鈥檚 recovery is to cut taxes on businesses and on people who invest in them. These steps, he says, are the 鈥渃onditions that enable businesses of all sizes to grow and thrive.鈥� In other words, if businesse get more capital at less cost, they鈥檒l create jobs.

But anyone looking closely at the American economy today would see this is nonsense. American corporations have an unprecedented $1.8 trillion of cash. The Fed, meanwhile, has slashed interest rates to essentially zero 鈥� a record low 鈥� and is still holding over $2 trillion in securities that it said last week it will keep from shrinking. And a Federal Reserve survey released earlier this week showed that banks have been making it easier for businesses of all sizes to get loans. Credit standards for small firms have been loosened for the first time since late 2006.

In other words, businesses have all the capital they need. They鈥檙e sitting on it or can borrow it more cheaply than ever. But they aren鈥檛 using it to create jobs.

Why not? Because there鈥檚 not enough demand for their products or services. Consumers aren鈥檛 buying.

Retail sales continue to slide. Wal-Mart, Home Depot, and Target report disappointing sales. Same with popular back-to-school retailers like Aeropostale, American Eagle Outfitters, and TJX. Housing sales are down. Appliances are down. (Cars sales are up a bit but that鈥檚 mainly because they fell to record lows in 2008 and 2009, and by now some people who have held back need another.)

Romney鈥檚 supply-side economics won鈥檛 create jobs. It鈥檚 pushing on a wet noodle. Businesses create jobs only if consumers are pulling the noodle from the other end.

These days, businesses are raising profits by cutting costs (mostly by laying off even more workers), shifting operations abroad wherever they can find consumers (China, Brazil, India), and buying up their own shares of stock. Romney鈥檚 tax breaks will only hasten all this.

If Mitt Romney really wanted to increase American jobs and not just corporate profits he鈥檇 understand why consumers aren鈥檛 buying, and focus his proposals there.

The first reason they鈥檙e not buying is they鈥檙e still carrying a huge debt load. Mortgage debt is still engulfing millions of families. Americans also owe some $826.5 billion in revolving credit, mostly on credit cards (credit card debt was $975.7 billion in September 2008, so they still have a long way to go). On top of that, outstanding student loans (both federal and private) total some $829.7 billion.

So instead of boosting corporate profits, let Americans reorganize their mortgage debt in personal bankruptcy, protect them from credit card companies that charge gargantuan interest on credit card debt, and give their kids more direct aid for college.

The second reason consumers aren鈥檛 buying is their nest eggs have shrunk down to the size of peas. Homes are still worth 20 to 40 percent less than in 2007, and 401(k)s are down 20 percent. Baby boomers now have to save for retirement big time.

So instead of a giving corporations a tax break on their incomes, and giving investors tax breaks on dividends and capital-gains, cut the payroll tax for ordinary Americans. 80 percent of Americans pay more in payroll taxes than in income taxes, and it鈥檚 a regressive tax. Eliminate payroll taxes on the first $20K of income and make up the difference by raising the cap on income subject to payroll taxes (now about $106,000).

The third reason consumers aren鈥檛 buying is they鈥檝e lost their jobs or are scared of losing them, or can only find part-time jobs that pay less. And because most families rely on two wage earners, the chance that at least one of them has lost or is in danger of losing a paycheck is double. That means families have no choice but to economize.

So instead of giving tax breaks to companies for buying more machines to replace their workers, make big profitable companies pay severance to any worker they lay off, equal to a month鈥檚 salary times the number of years worked. And require that any corporations receiving government contracts and subsidies (including defense contractors) use the money to create jobs in the United States.

Mitt Romney is the most credible of all the likely Republican presidential candidates. He鈥檚 right to focus on the economy, and he鈥檚 to be commended for coming up with specifics. But his specifics are loony. Romney鈥檚 wet-noodle economics won鈥檛 create American jobs.

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