Good news team: The latest Yahoo Poll of Polls election map is looking very favorably for the red states. However, there is a flaw to this current plan. This same middle class failed to learn the lesson of 'saving' from their baby boomer predecessors. The baby boomers are moving into retirement, and will be using their savings earned from better economic times (see; Reagon, Ronald). Because of this wave of retirement, any tax cuts for the baby boomers will be moved squarely into saving for future spending, and not into the existing economy. If the current working middle class employed the same saving discipline, I would have more hope in Obama's economic theory. However, these tax cuts will not be used for the designated spending as Obama hoped, but rather to be saved to be spent on back expenses. One of the reasons we find the economy in harder times is because of mortgages, notably adjustable rate mortgages. The lower and middle class has been deceived into ARMS because of the teasing low beginning rates. Now those rates have jumped measurably, causing widespread panic. The tax cuts intended to boost consumer spending will be used to pay down mortgages primarily.
The second use of the tax cuts will be used on loans. The credit crunch and slow economy have affected loans to where the middle class have not been paying down the principal, only the interest. The banks want their clients to only pay the interest, and stretch the payment period to draw more money. The middle class will use these tax cuts to get more leverage on their outstanding loans. Once again the incentive of spending for household appliances will be overlooked, and money Obama hoped would circulate through high end appliance retailers (raising the capital seen from sales taxes, to support his agenda) will not.
Obama's plan is long ranged, and over the course of 8 years, we would see progress, but not the quick acting affects we hope and he promised. Also, we need to remember, these tax cuts are temporary. A vote for the Democratic Party is a vote for big government, and big government needs big money in order to administer their various and often unnecessary programs. As soon as Obama and company feel tight, and see that none of their programs have taken to development, the middle class will see the inevitable tax hikes, bringing us back to square one and undoing any progress. Through this, the Fed and Ben Bernanke will need to scramble to solve these problems. There isn't much Bernanke would be able to do to coincide with the Obama plan. The Fed would run the playbook: 1) lower interest rates, hurting banks, 2) print more money, devaluing the already deflated dollar. The latter will be the worst, seeing as the Euro is already replacing the dollar in foreign backed securities, inflation will skyrocket, and by with the dollar devalued, China will be able to own a higher piece of the American Pie.
Let's shift gears, and see why McCain's economic plan will be beneficial to America. With a stimulus package being discussed, McCain will be able to implement the GOP's greatest invention Reagonomics. This stimulus package will be intended for instant spending into the economy, and seeing as the stimulus will consist of a fixed amount ($600?) it will not be enough to persuade the middle class to save this one time event. On the eve of consumer spending, McCain will be able to allow tax cuts for Corporate America which will paint a broader stroke. These tax cuts for American companies will open more a revenue stream which will be used to create jobs. These same corporate tax cuts will improve Corporate America's balance sheets, making the companies healthier, improving stock price, ultimately sending the Dow to new highs. With a vigorous Dow, middle class 401k's and IRA's will be strong enough to borrow against for real estate spending, and as we've learned the housing market is the real driver of the American economy.
The trickle down effect or supply side economics will be seen. The trickle down theory states that any tax cuts for large corporations or for the wealthy will be used to invest into America's infrastructure. The trickle down effect will increase the supply of goods to economy, which not only meet demand, but exceed it, causing prices to decrease. By having more money invested in infrastructure, corporations' money "trickles down" do the middle and lower classes. Same goes for the wealthy America, whom have more invested in America's equity, and more to gain by economic success.
It might be the vogue thing to vote for Obama, but is it really the smart choice? For quick acting and long lasting economic success, let's Reagonomics do its thing. Let the corporate tax cuts open more jobs for the ever increasing unemployed, and lower the price of goods by using the trickle down effect. The last thing America needs is to fight another long war, this one not on Wall Street, but on Main Street, as average Americans need to find the money to support Obama's big government, and flawed economic plan. America is a nation of passing fads, and let's hope Obama fades into our popular culture as quickly as pogs or the Macarena.
Barack Obama, you are the weakest link…. Goodbye.
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