Let’s Subsidize Work Instead of Shareholders

Substation transformer

Looking back, there is no surprise that the result of the tax reductions passed by Republican votes in 2017 failed to rejuvenate the economy. The stated belief was that businesses would use the windfall from reduced taxation to invest in their employees, through higher wages, or invest in productive assets and expand their production base. Surprise! They didn’t. Businesses found that their analysis of the best use of the windfall was to increase stock buybacks and increase stock dividends. The main reason? There is just not justification for investing in new productivity within a mature market like the US.

Production facilities were not relocated from low wage countries, since the cost of labor greatly exceeds the benefits from lower taxation. Therefore it does not make economic sense to relocate low-value manufacturing back to the US for strictly economic criteria. It is only due to events like the supply chain interruptions from the pandemic (and to a lesser extent trade and tariff wars) that created a new incentive for bringing low value manufacturing back to the US.

What is needed is to create new incentive to build businesses that address needs within the US that are additive to the existing consumer base, rather than attempting to relocate existing production to meet stagnant demand. The best place where new demand could be created is in the energy markets and the infrastructure of the electrical grid. Somehow we must make it worthwhile to cause a market shift to use of renewable energy on a smaller scale than through citing of huge power plants, which result in inefficiencies through thermodynamic factors and through distribution from the grid. We already know that large power plants and the necessary facilities to distribute the energy are vulnerable to external shocks. A single large coronal mass ejection event from the sun could result in system wide outages for months at a time until new transformers are built and installed. Similarly, with the destabilization of international relations, use of electromagnetic pulse weaponry could cause equivalent destruction. Either way, our civilization is vulnerable to external forces that would bring us immediately back to the pre-industrial age, leading to immense loss of life.

So it makes it very clear that we need to create enough incentive to enable the decentralization of our electrical system. By doing that, we would improve our own future by reducing the potential for severe disruption. We would also create literally millions of jobs by creating a market for home energy system improvements that would use local labor to install and maintain. And our large scale manufacturing would also benefit by creating the solar panels and battery storage devices that the new grid would use.

Several years ago, we in West Virginia suffered through the aftereffects of a derecho that stopped electrical service across our region for multiple days. Living through that encouraged us to purchase a whole-house electrical generation system, powered through natural gas. Those systems have a weekly 5-minute system test where the generator runs. In my immediate neighborhood in West Virginia, I can hear three generators (including ours) conducting their tests over the course of the week. Good for us. We are assured that we cannot lose electrical power for an extended time. Or are we? Since we would all tap into the natural gas system, would it have enough capacity to handle all of us (and the others up and down the line) who have generators to handle peak demand? There is no way for us to know that except to run the full-scale test and suffer through an extended power outage. Surely this back-up generator expansion is not a scalable solution for metropolitan areas, since I am aware of no studies indicating how much gas would be available if it was being used extensively to replace standard electrical service.

Electrical service is the best example of an area where new means of producing and distributing a commodity (electrons) could be reworked to create new opportunities for investment and entrepreneurship. Unfortunately, other areas of our infrastructure are not as amenable to creating new incentives for reworking and repair. Other utilities such as water and gas are already regulated, and new fees for upgrading service are scrutinized and rarely approved by regulatory agencies. Face it, to replace water or gas lines involves huge investments, and the incentive to do that is not worthwhile for the private market to seek this as an area for investment. But it is crucially needed. Therefore if we are looking for places for government to stimulate the economy, it makes much more sense to provide subsidies for additional productive work rather than to provide tax reductions that only benefit shareholders. And I’m speaking as one who is fortunate enough to receive dividend income through my owned equities, so I am a beneficiary of the current system.

If anything has become evident during this year of pandemicmonium, it is that maintaining the ability of the consumer to keep stimulating the economy through spending is vital. If we suddenly turn off the spigots, then the result is longer term shrinkage of the economy, and a further increase in income inequality. So the types of changes I am proposing are not appropriate for this stage in the pandemic. But coming out of this mess, it is vital that we begin to plan to actually improve the state of our nation and its infrastructure, rather than accept what we had as being adequate. We now have a wealth of data to show that we’ve lived with inadequate systems, merely because it would have gored someone’s ox to fix the problems.

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