Why a Stimulus Won’t Help Employment

Alabama Senator Richard Shelby argues that a flat tax would transform us into a nation of savers, not spenders.
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Question: With most Republicans opposed to additional fiscal stimulus, how can we reduce the unemployment rate? (Scott Sumner, The Money Illusion)

Richard Shelby:  Well I don’t believe you’ll ever reduce the unemployment rate in a meaningful way with stimulus.  In other words with government spending because once the stimulus is spent generally the jobs are gone.  What we need to do is revitalize our banks where they can make loans to small and medium sized businesses and let the market work.  The market ultimately is probably going to be the only thing that brings unemployment down from the high levels that they are today. 

Question: What’s going to be the best method of lowering the U.S. debt without raising taxes? (Dan Indiviglio, The Atlantic Business Channel)

Richard Shelby:  I have never to my knowledge voted for taxes.  I don’t plan to vote for them in the future because the spending of the government will always outrun the taxes.  In fact, right now we’re spending too much in taxes.  If we tax everybody 90 percent it wouldn’t take care of our problems.  It might aid and abet some of them, but then we take that money out of people’s pockets and we do real damage to the economy, so if people are advocating taxes as a way to close our deficit I think that’s a short term and I think it’s a flawed argument. 

Question: Given that a flat tax has little to do with simplicity, which is our main goal, why is a flat tax fair? (Mark Thoma, Economist’s View)

Richard Shelby:  I believe a flat tax would be fair for a lot of reasons.  I have advocated the flat tax on a number of occasions.  One, it would lower people’s taxes, tax burden.  They would have more money to spend and it would be good for the economy.  They’d have more money to say, which would be good for future investment and job creation in this country and a family under my proposal, a family of four that made I believe $36,800 would pay no taxes at all.  We would become a nation of savers instead of spenders and there would not be deductions because you wouldn’t need them.  You’d have more discretionary money.

Recorded on January 22, 2010