Prior to 1986, consumer debt, like credit card interest was tax deductible. Credit card rates of about 8% -10% were the norm. I was there; I actually remember those days. It was Ronald Reagan and the Tax Reform Act of 1986 that ended deductability for auto loans and credit card debt. And, by the way set the stage for mega banks and mega bank products.
Today, banks act as if 30% rates for consumer credit cards are not just the norm, but some kind of God given right. No wonder THIS Christmas season looks bleak to retailers In fact, consumers have been treated like a moronic source of revenue that could be squeezed for ever, and still yield increasing amounts of money. Nothing is farther from the truth, just like it is NOT true that 72% of economic activity in the United States comes from consumer spending While this belief underlies traditional economic thinking, it is, in fact, dead wrong.
At most 40% of economic activity in the United States comes from classic consumer spending The other 30% is money spent by government and NGOs and the like on people’s needs – for example, the 19k spent by Blue Cross on my hip replacement would show up as “consumer spending”.
Therefore, the “cuts” to programs like smoking cessation of more then 60% and to the SANE program that provides trained nurses to victims of rape of 66% is actually a direct cut that slashes economic activity and drives the recession. When government cuts direct programming, another wards, government is creating and abetting recessionary energy and could be creating a depression.
Want to turn the recession/depression around? Here are some ideas that history seems to show would work:
1. Make credit card interest tax-deductible and limit rates on credit cards to 10% – that is still a 9.5% profit margin for banks at today’s prime rate.
2. Restore all direct service programs funded by government to pre-recession levels.
3. Cut no jobs from government except for management and assistant deputy level type jobs – these front line government employees like social workers and RMV counter staff are consumers and taxpayers and the training costs to replace them one day will make having laid them off to ‘save money’ look like the act of a moron.
4. Create incentives for big institutions like Harvard not to lay off staff because their endowments are down – the endowments will self regulate; these are paper losses and Harvard is here for the long term. Degrading living wage decent jobs to out sourced wage-slave jobs will permanently impair the local economy and, in fact, drive recession into depression. Besides, these layoffs and “Hyattized” jobs look like using the economy as an excuse for cheapness; living wage jobs drive a healthy economy, exhausted wage slaves who live in shelters and work three jobs to live drive crime, high divorce and out of wedlock pregnancy rates, school failure due to unavailable parents, and recession because such workers cannot afford even a working class lifestyle.
The fact is history has more to tell you and I about economics and human behavior than the experts with strings of letters after their names.