Outside the Beltway

Outside the Beltway

Mending the Economy (Updated)

Dave Schuler
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Well, the income tax rebate has been signed into law

WASHINGTON — The stimulus law signed by President Bush on Wednesday provides what he called a “booster shot” to the economy, but the medicine might not be strong enough to ward off a recession.

The $168 billion package of personal tax rebates and business tax cuts will likely help shore up consumer spending later this year, economists say. That could minimize the pain of a possible downturn. But it won’t resolve longer-term issues bedeviling the economy, such as a free fall in home sales and prices and a credit crunch that has persisted despite aggressive Federal Reserve interest rate cuts.

I don’t believe that this quick fix will heal the problems of our economy any more than Michael Bloomberg does:

NEW YORK (CBS/AP) ” Mayor Michael Bloomberg has unleashed another flurry of jabs on Washington, ridiculing the federal government’s rebate checks as being “like giving a drink to an alcoholic” on Thursday, and said the presidential candidates are looking for easy solutions to complex economic problems.

The billionaire and potential independent presidential candidate also said the nation “has a balance sheet that’s starting to look more and more like a third-world country.”

I’ve put a few further thoughts on the economy and the rebate here.

Harnessing the combined intellectual powers of the OTB commentariat, let’s do a little thought experiment. What steps, if any, should be taken to solve the problems with the U. S. economy and why? Please keep your suggestions positive and relate means to ends.

Update

As if on cue, the Washington Post has an article sketching the economic policies being proposed by Hillary Clinton and Barack Obama:

Clinton and Obama both promised that they would make the tax code more middle-income-friendly and would protect consumers from threats — including predatory credit card companies and rapacious college lenders. Both candidates condemned corporate tax breaks that they say send jobs overseas. Both pledged to protect homeowners and said they would repeal President Bush’s upper-income tax cuts while extending those for the middle class. Both promised to rein in credit card companies that arbitrarily raise interest rates, sending families into a downward spiral of debt.

Are these the reforms that will cure whatever ails our economy?

Other proposals in the article include

  • Retaining the Manufacturing Extension Partnership
  • Establishing a Financial Product Safety Commission
  • Ending the carried interest loophole

I don’t see these as measures that would place us on a solid economic footing but perhaps someone can enlighten me.

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8 responses to “Mending the Economy (Updated)”

  1. DC Loser Avatar
    DC Loser

    Is it too late for Bloomberg to run for President?

  2. Steve Plunk Avatar
    Steve Plunk

    Oil. Oil prices have a huge effect on consumer confidence and disposable income. High oil prices worsen the trade deficit and enriches other countries at our expense. Oil directly impacts transport costs of goods and even the cost of services. Oil impacts the cost of goods indirectly in many other ways.

    We have untapped reserves that can be developed in an environmentally responsible manner. Royalties from domestic production would reduce our deficit. We have the ability to fast track new refineries or even subsidize them to a degree. We can suspend requirements for costly fuel mixes that change regularly.

    OPEC has damaged this country over the past 35 years and is going to continue to damage it until we take efforts to destroy or marginalize it’s power. We would not stand for one of our own industries to form a cartel and extort us the way we allow OPEC.

    Reducing the cost of oil is not borrowing from Peter to pay Paul. It will not create more debt. It will gradually give money to consumers and instill confidence in businesses.

    Reducing oil prices to around $60 a barrel will still keep it high enough to spur alternative fuel research and development. At $60 a barrel the stimulus to economy would dwarf the stimulus package the government is providing.

    Oil could be the key.

  3. Michael Avatar
    Michael

    What steps, if any, should be taken to solve the problems with the U. S. economy and why?

    You need a better defined goal or you’ll never know how to reach it.

    For that matter, you need better defined problems. How about we give specific names to some of the “problems” the economy has, that way we know what we intend to “fix”.

    Steve Plunk names one: “Rising cost of transportation”. Since we currently use an oil-dependent transport system, he suggests making oil cheaper. Personally, I’m skeptical that we can produce oil domestically cheaper than the cost of importing. How else can we make transportation cheaper? The rail system in our country is unfortunately lacking in “last-mile” coverage, but it may be able to cheaply deliver goods to local distribution hubs, with local trucks covering the last mile. What other options do we have?

  4. Michael Avatar
    Michael

    Another option: reduce our dependency on transportation. Produce and consume locally, distributed production of goods, would cut back on the amount of transport required between the producer and the consumer. This would reduce competition to some extent though, and certainly the cost of establishing many local production facilities instead of one or two national ones would be a huge investment. Still, we see this model already in use for food, can it translate to other goods?

  5. Kurt Brouwer Avatar
    Kurt Brouwer

    The key issue is economic growth. The measures that promote growth are fairly clear and have worked successfully here and in other countries:

    1. Keep the rules by which business operates
    clear and avoid frequent changes.
    2. Tax moderately and keep the rules steady.
    3. Regulate only when absolutely necessary.
    4. Promote free trade.
    5. Avoid subsidies of non-competitive businesses.
    6. Promote private job training and education.
    7. Teach free market economics in school.

    Here is an example of viewing a commonly denounced problem from a holistic economic perspective:

    Why Our Children Will Be Lucky To Inherit Federal Government Debt

  6. Dave Schuler Avatar
    Dave Schuler

    Unfortunately, Kurt, taxation is only one side of the fiscal coin.

  7. Steve Plunk Avatar
    Steve Plunk

    Kurt’s suggestions are like hearing beautiful music on a warm spring day. The truth when spoken clearly is always nice to hear.

    The only problem is getting everyone on board such an ambitious proposal. Many conservatives have been advocating for these things for years only to be met with opposition from various camps and other ‘conservatives’ who really aren’t gumming up the works. Regardless, we should always have goals and aspirations. Kurt’s post sums them up nicely.

  8. Bill H Avatar
    Bill H

    Not necessarily in the following order
    1. Re-regulate business
    2. Stop (and reverse) corporate merger mania
    3. Do a “moon landing” type project on green energy to reduce oil dependence
    4. Eliminate tax cuts for the wealthy
    5. Do a project to rebuild infrastructure
    6. Provide economic incentives to return manufacturing to our shores

    Do you notice that none of those focus on increasing consumer spending? Numbers 3, 5 and 6 focus on returning meaningful, well-paying jobs to the economy.

    As painful as it will be, home prices should be allowed to seek their natural level. People with median incomes should be able to afford a home without spending unnafforable portions of their income.

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