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Stimulus Done Right PDF Print E-mail
Tuesday, 07 July 2009 16:33

On a forum I frequent, we often talk of politics.  A question came up about how so many are disappointed with the actions of the current Administration as far as the economy goes (and in general, that seems to be echoing with the general population as well).  The poster asked "what would you do to get things moving again".


As most could guess, I am no fan of the Obama Administration's handling of the economy (that phrase should not even exist; a Presidential Administration should NOT be involved in the economy to begin with, but I digress), and would favor a free-market based approach.  And you would of course guess right.  My approach is rooted in a very straightforward and easy to understand plan.

 

Here's what I would do:

1. Cap the increase of all Federal spending to no more than inflation plus population growth.  Codify this so that everyone knows that we will grow ourselves out of debt (shameless plug: that is my infrequently updated blog site).  This means you don't have to cut a single program or benefit.  It's just capped to a sensible level: inflation (cost of delivery) plus population growth (increase in users).  This move alone would greatly strengthen the value of the US T-bills, and allow us to cut the interest on those long-term debts at least in half, meaning massive savings over the 10 to 30 year periods.  No new programs or taxes (keep the conservatives happy), but no cut in any existing program (keep the liberals happy).

 

2. Zero capital gains tax.  None.  Nada.  You want to stimulate investment and growth of the private sector?  Then stop penalizing success.  There is a definite correlation between higher growth and lower corporate taxes; even then-Presidential-Candidate Barack Obama admitted as much.

 

3. Zero corporate income tax.  All industries, and permanent.  Again, you want companies to grow and expand?  Then leave the capital within the companies and with the owners, and they will grow and hire more people.  In 2007, corporate income taxes were $370 billion, not even half the stimulus bill (and 20% of this year's deficit).

 

4. Zero import duties.  It's a very small amount (see the link in number 3) and only serves to increase the costs to the consumers.  A healthy company or industry will have no impact from this.  If businesses fail because of increased competition from overseas, then how strong were they?  Do not prop up weak businesses, you only retard the growth of healthy companies by skewing the economic realities of that industry.

 

5. Along with number 4 - no bailouts.  Period.  You compete, you succeed, or you die.  No company is "too big to fail"; if it fails, it fails because of poor management, inefficiencies, lack of innovation, fraud, or a combination thereof.  Propping up dying companies simply restricts the growth of living companies, and halts the emergence of new, stronger companies.

 

My plan would structurally change the long-term chart for the US economy.  We would have a plan to get out of debt - not just reduce or eliminate the deficit, but reduce the debt (which has not occurred since Eisenhower was President).  And in fact, eliminate it.  Gone.  That will help the economy immensely over the long run, meaning that you will lower the risk of this kind of thing happening again (although, it is not worse than the recession of 79-82).

 

Also, it would immediately pour trillions back into the economy, as money sitting on the sidelines would re-enter the markets.  Money is waiting to see what happens.  Right now, the tax laws are in flux, and even the rules of business - who succeeds and who fails and who gets owned by the Government - are unknown.  So a lot of money just sits.  My plan would get investments in businesses rolling again.  This alone will solve the liquidity crisis as those with money will be encouraged to invest, now that the rewards from that investment won't be taken away from them.

Last Updated on Thursday, 03 December 2009 17:50