Friday, January 30, 2009

Stimulation

The House passed an $850 economic stimulus package, hastening our decline into economic disaster.

You don't need to be an ecomonist to see how warped this logic is. If you wanted to get richer, you wouldn't do it by moving money from your right pocket to your left pocket, yet that's what the government is proposing. By sucking $850 billion in tax revenue out of the ecomony, and then sticking it back in through this package, the government is going to make all of your financial problems go away.

But alas, it's not even as good as a wash, or an empty gesture. Instead, we lose money through this package, as government employees must be paid to first collect taxes, then distribute the checks. Oversight committees must be formed to make sure the money is being spent as directed. And yet more employees will be paid to prosecute and punish those who don't comply. Not to mention that much of this windfall will be funnelled inefficiently into pet projects and politically powerful businesses.

Iceland's already bankrupt, and countries like Greece and Great Britain are not far behind. All of these governments have dangerously overspent and nationalized risk in a vain attempt to stave off the forces of creative destruction.

The answers are simple, yet so politically inconceivable that I struggle to remain optimistic about America's future. Chances seem high that we're living through the death throes of an economic superpower, as we "chuck aside our free-market principles", the very principles that have set us apart from the rest of the world and fueled our vast wealth.

But since pissing into the wind is one of my favorite pastimes, I'll enumerate some suggestions for the Obama financial team anyway...suggestions that are not only guaranteed to shorten the length of this down cycle, but cushion future boom-and-bust turns of the wheel as well:


  • Cut the capital gains tax rate. We need to stimulate investment to get the economy moving again. Yes, short-term we lose some tax revenue this way, but if we're going to spend $850 billion, this is going to be much more fruitful for the economy as a whole than just spreading money around.
  • Cut the business tax rate. America needs jobs, and it needs businesses that are growing, not going bankrupt.
  • Balance entitlement programs. I prefer the privatization of Social Security and Medicare (I agree with Bush on something, go figure) but at the very least we need to ensure the ongoing viability of these programs without threatening our economy. Currently, every paycheck has money taken out for Social Security and Medicare. Pay out 99% of that money the next year, and not a penny more. Let the 1% grow and accrue interest, to be used as a lockbox during downturns. Would benefits be cut? Of course. But we can't continue to spend what we don't have. Imagine how benefits will be cut when the government goes bankrupt, like Iceland did.
  • Balance the budget. There is little reason to fear small deficits (say 2% of GDP), but we simply can't trust our elected officials to be prudent with our money. Pass a Balanced Budget Amendment, and never again allow overspending.


Sadly, I know that none of these things will happen. Instead, it's a headlong and inevitable race to destruction, as we compete to become the next failed government. But plenty of theives and leeches will get rich before the end comes, and isn't that what it's all about anyway?

3 Comments:

At 3:51 PM, Anonymous rbohn said...

not sure if you've heard of Peter Schiff, but I've been watching a lot of his interviews lately and his stuff makes a lot of sense. Unfortunately, it's not good news for the U.S.

scary: http://www.youtube.com/watch?v=0xuK9WCOTKY
very scary: http://www.youtube.com/watch?v=XWM_AjBS64A&feature=related
he was right before: http://www.youtube.com/watch?v=2I0QN-FYkpw

 
At 4:01 PM, Blogger MarkRebuck said...

I think you are being too kind using the "move money from one pocket to another" analogy. Unless I've missed something, the government hasn't said a word about collecting taxes for this "$850B". They are simply going to print it, which is even worse than raising it via taxes.

[Insert rant about loose monetary policy, inflation, etc. ___HERE___]

 
At 4:56 PM, Blogger millhousethecat said...

And, as a teacher, I know how important it is to model something before you can expect everyone to do it themselves. Our government, with this type of package, is not modeling good financial behavior.

Today at recess one of my girls came over and said, "My mom just got a tax refund. It was a lot of money. We stayed out last night spending it. She got us each some new clothes and a flat screen TV for her bedroom."

Spend, spend, spend.

I realize that our government wants us to do this to "stimulate" the economy, but wouldn't we all do better to put some away? To save? Or to try to get out of debt instead of perpetuating it?

 

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