Thursday, July 29, 2010

Private Cos profiting from stimulus

I am sort of wandering into another thought in this blog about stimulus rather than discussing the middle ground that I was going to talk about. The govt has extended unemployment benefits now for 99 weeks. The private companies are benefiting heavily from this govt spending on deficit. The private cos are able to layoff the workers but the workers are getting money from the govt to spend on consumer products that these cos are selling. The private cos revenues are being sustained by the govt while they are able to shift the employee cost to the govt, giving them greater margins. The govt is taking on the debts thru deficit spending and those debts are shifting to the private cos balance sheet as cash. The govt's debts are ultimately the citizen's responsibility - it will have to get paid thru higher taxes or higher inflation. The deficit spending may be a stealth way of moving wealth to the coffers of the private cos - controlled by a small group of shareholders. Which is why the govt should increase taxes to spend on unemployment benefits rather than use deficit spending. Why shouldn't private cos and employed citizens not pay for the unemployment benefits. A society needs to create jobs for everybody and if it can't, then it must support the unemployed to become employed. I suspect the deficit spending is unfairly shifting wealth to the rich and may not be right just because of that.

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