How To Fix The American Economy And The Dimes Worth of Difference

I bristle every time I hear someone try and blame the current economic crisis completely on the woeful eight years of the Bush Administration. As someone who has consistently desired reductions in government spending and decreases in our deficits, I am stunned and saddened by the spending we now see, the deficits that are being incurred and debt that our children and grandchildren will never be able to pay without significant reductions in government and confiscatory taxes.

The following is an annotated and cleaned up excerpt from a comment I posted in response to an Obama supporter pinning all the blame on Bush. I'm not a supporter or fan of either man and when you hear libertarians in particular talk about there just not being much difference between MOST Democrats and Republicans, the following highlights some of the proof there.

Excerpt from Indiana Barrister, Abdul Hakim-Shabazz's Blog. Abdul is the host of Abdul in the Morning, an Indianapolis based morning talk show that generally does an excellent job covering local and state politics. The show is currently found on WXNT - Newstalk 1430AM from 6 until 9 AM Eastern and is followed by the Glenn Beck program.

“Bush Led Recession” is an intellectual dishonesty. Don’t get me wrong, he was woefully bad and could have helped avoid this but, accelerated by his big government spending and lack of proper attention to economic matters, the clock ran out on his watch.

The only purpose of suggesting Bush caused it is to be a willing tool of one political party over another rather than truly evaluate the economic circumstances and policies going back close to 100 years.

It is about a half hour conversation to go through all of the causes and issues at a very high level. The solutions are simple, but politically unrealistic under the ‘one party system’.

Steps:
(1) Massive cuts in government spending
(2) Cut taxes
(3) Where taxes are necessary tax consumption not productivity
(4) Allow bad debt to be liquidated
(5) Allow distressed assets to fail and be reborn into productive ones
(6) Phase out the Federal Reserve
(7) Restore “sound money”
(8) Phase out SS/Medicare/Medicaid using ‘opt outs’ ‘buy outs’ and attrition
(9) Dismantle GSEs (Government Sponsored Entities)
(10) Start ‘educating’ our children instead of ‘graduating’ them.

These items would eliminate market distortions, restore economic risk to private entities instead of public, increase confidence in our currency, balance our budget, build barriers to excessive taxation, allow economic resources to be put back to productive use, reduce inflation, reduce interest rates and restore solvency to the government.

Currently, the United States Government owes so much money that if we could tax the entire world’s productivity at 100% for an entire year, it would not cover the tab. Taxing the entire U.S. at 100% for nine or ten years wouldn’t do it. Selling everything our entire country and our people own … still can’t pay it.

The seeds were planted and watered all along the way from Wilson, Hoover and FDR up through Eisenhower, LBJ, Reagan, Bush (41), Clinton and Bush (43). I fear Obama is just pouring gasoline on the fire.

To prove the "dimes worth of difference" claim let's look at each of the items listed above:

(1) Massive cuts in government spending

Bush grew government spending in eight years from under $1.9 trillion to over $3.1 trillion (excluding off budget war costs). Fiscal Conservatives voting for Bush were betrayed like no other. Obama continues to grow government spending (recently proposing $3.6 trillion budget) as well under the guise of "stimulus" but that is just cover to finally spend money where they want to and serve their political interests.

(2) Cut taxes

Eliminating the Personal Income Tax completely would take government spending back to around year 2000 levels depending on who's numbers are used. Tweaking or bouncing from 35% to 39.6% is an argument over semantics, not whether it is right to take anything at all. Taking a single dime from one American to send to a U.N. program that pays for forced population control abortions in China is theft and to anyone of strong religious convictions reaches a whole other level of crime against them. Bush did correctly reduce the capital gains and estate taxes and modestly cut taxes for everybody. Obama appears prepared to increase taxes only on those who actually create the wealth in the country. Remember, someone like Bill Gates got rich by creating many, many thousands of jobs and even whole industries around him. He did not 'plunder it'. (I know, Mac and Open Source folks are groaning right now - I feel your pain - hurrah for Ubuntu!).

(3) Where taxes are necessary tax consumption not productivity

You get more of what you subsidize, less of what you tax. Income taxes tax productivity instead of spending or consumption. This creates a disincentive to savings and investment. Our savings rate, until very recently as people pulled back their purchasing, has been negligible and sometimes negative. Taxes on income allow the government steal your money, via withholding, before you ever get it while if consumption was taxed, if the rate got too high, people could voice their opinion by closing their wallet [Hamilton - Federalist #21]. While my ultimate choice would be to eliminate as many taxes as possible, I do favor legislation like HR 25, The FairTax Act, over most other forms of tax tweaking and tax reform that are presently talked about and immediately viable.

While last session around 74 members of Congress supported this legislation by putting their name on it, neither Bush nor Obama support this much needed type of tax reform. The benefits of the FairTax over the Flat Tax will be the subject of an upcoming post. I used to favor the Flat Tax over the FairTax until I really evaluated both plans.

(4) Allow bad debt to be liquidated

Both Presidents have supported the idea of direct government intervention to bail out failing financial institutions. This is a whole other discussion to be had, but why not let these organizations fail and let the healthier, better managed ones pick up the pieces and prosper?

(5) Allow distressed assets to fail and be reborn into productive ones

If GM goes out of business tomorrow there is still a demand for the quantity of cars that they normally would sell, the demand for cars and need for people to make them would not go down. GM and Chrysler have gotten beat by better competitors. This is how capitalism works via a concept called "creative destruction". Make a better mousetrap and you can make money by putting the maker of the inferior mousetrap out of business, to compete he must sell his product for less than yours or come up with an ever better product than you have invented. A third option, frequently used, is to petition the government to ban, restrict, regulate or tax your better invention.

If the American owned manufacturers are allowed to go out of business, their factories, parts, inventories, buildings, patents, copyrights, trademarks and brand names do not disappear into thin air. Yes, it would be painful, but other organizations will buy up those assets and, using (we hope) better management, put them to more capable and productive use in the economy. Remember, the other car makers are going to need more employees, more factories and more of everything else in order to meet the demand for cars currently met by the failing organizations.

Neither President appears to support this option although the patience with GM does seem to be wearing thin.

(6) Phase out the Federal Reserve

The Federal Reserve is a privately owned banking cartel that Congress has unconstitutionally delegated the power of money creation to (the Constitution 'delegates' this to Congress already). Wise men throughout history have repelled the idea of central banks (President Jackson dismantled our first one) but private banking interests prevailed in 1913 to establish the current system (and the income tax to pay them interest). I highly recommend this 40 minute YouTube documentary on Money, Banking and the Federal Reserve. Watch it, and if it doesn't make you mad watch it again.

The FED allows for interventions in the monetary system that are generally harmful, not beneficial. Remember, it was founded under the promise that we would never have another recession; however, within 20 years we were in the middle of the worst one our country has ever experienced to date.

Neither Bush nor Obama are advocating for an elimination, reform or even an audit of this system. Congressman Ron Paul has introduced legislation to at least audit the Federal Reserve and has picked up over a dozen co-sponsors including Rep. Dan Burton of Indiana (R). Some Democrats have even signed on.

(7) Restore “sound money”

Our money, starting in 1913 but with the nail in the coffin being hammered into place in 1971, is no longer backed by anything of value like Gold. Many people consider this idea outdated, but when your currency is backed by "The Full Faith and Credit" of a deeply in debt government and when it's value can be reduced merely by firing up the printing presses, harming poor people the most, then our currency is not "sound" it is just an illusion. It is like the baseball card that has value only so long as others believe it does, it is difficult to get or has scarcity value, and are willing to pay for it in the belief that it will hold or increase in value in the future.

Neither Bush nor Obama are advocating the idea of restoring sound money.

(8) Phase out SS/Medicare/Medicaid using ‘opt outs’ ‘buy outs’ and attrition

Touching Social Security or Medicare/Medicaid is considered taboo in politics. So much so that when the Bush Administration actually tried to promote the idea of privatizing just a portion of this, putting people in more control of the funds, it went no where as yellow streaks appeared in the backs of even Republicans.

Democrats claim that Social Security is an "insurance policy", Republicans and Libertarians view it as a forced investment scheme that pays very low interest [ie: you are FORCED to loan money to the government for very little interest]. Insurance policies are for IF you need it and most people do not view it as "insurance". They consider that they have paid into it, they want their money back when the time comes.

At least Bush made a modest effort, Obama or some future administration will now have no choice but to reduce benefits or use printing presses to inflate the currency in trying to keep up.

(9) Dismantle GSEs (Government Sponsored Entities)

Without government sponsorship, Fannie Mae and Freddie Mac would have never been able to grow to the size they did and create the consolidation of risk they posed. The loans and risks they held would have been spread amongst hundreds or thousands of smaller firms, each with varying levels of (likely better) management, immune from political influence and with varying degrees of risk tolerance instead of that directed by politicians trying to force home ownership onto people who maybe can't afford it.

I have not heard either party promote the idea of dismantling these entities and restoring financing and risk decision to the private market.

(10) Start ‘educating’ our children instead of ‘graduating’ them.

Despite ever increased government spending and regulation, our public school system is terrible. All efforts to introduce competition to this system are met with staunch resistance by teachers unions. I would think competition for the best teachers would be good for teachers salaries and increase promotion opportunities, but then what you need the union for?

If we did a better job teaching basic personal finance and economics, the right kind of economics (Austrian School) not that now discredited Keynesian crap, we might improve our savings rates, reduce the amount of oppressive debt our people get into. They might understand the implications of the things our elected officials do.

If we did a better job teaching Math, Science and Grammar we might have a much more skilled and productive work force.

If we should actually teach children our own system of economics and inspire them with limitless opportunity instead of funneling them into cubicle jobs and massive student loans they'll spend 20 years paying off. We need to inspire people to become the next Thomas Edison, Nicola Tesla, Henry Ford, Bill Gates, Stan Lee, Steve Jobs (and Wozniak) or Ray Kroc.

George Bush massively grew the Federal Department of Education rather than restoring those functions to the States. It appears that the new administration is not supportive of school choice initiatives nor will address eliminating the Department of Education. We've only had the Department of Education since the Carter years, Reagan promised to get rid of it (still waiting). I think we could argue things have gotten worse, not better since its inception.

So, looking at the above items, admittedly limited to mostly economic matters, there isn't a significant difference in policy. NEW BOSS. SAME AS THE OLD BOSS. Although, now we're just bombing stuff in Pakistan instead of Iraq ... there's your "change".

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