This post is the follow up to my post, "Take Two Fed Cuts And Call Me In The Morning" where I compared the Bush administration's economic policies to those of college students with their first charge cards. In it, I painted a dire economic picture that I feel accurately reflects the current state of our economy. In this post I'm going to suggest some concrete measures that we, as a country, can implement that can restore our economy.
Bob, Is There Anything That We Can Do To Help Our Economy Recover?
Yes, there is. As bad as it is, there are self-correcting mechanisms that are going to kick in. The foreign countries that are now financing our fiscal irresponsibilities are eventually going to get worried and stop investing money into our economy. When this happens, it's going to be painful, but we will have no choice but to reign spending in. Also, when we start to feel enough pain, the powers that be will have no choice but to actually take steps to put our economic house in order.
Step One: Accept the fact that the government can not continue to spend more than it makes.
Recognizing the problem is always the first step in fixing a problem. For the last 7 years we've blindly accepted the idea that we could spend money and not have to worry about how much money we were making. The fact of the matter is that it doesn't matter if you're talking about a household or a government, that spending more than you are making doesn't work in the long run!
Step Two: We need to reduce our spending
Recognizing it isn't enough! We need to take concrete steps to see that it happens. What we've been doing is the same thing that the person who looks in the mirror and thinks, "I'm fat!" Then goes out to the Country Buffet!. We need to take concrete steps.
For all you neo-cons out there, this is going to hurt.......We need to end the War In Iraq! In addition, we need to put an end or at least curtail all of the various corporate welfare programs that are now in place.
We can also save money by ending the War On Drugs. I heard on the radio the other day that it is estimated that the Federal Government just surpassed Five Hundred Trillion Dollars spent on the war on drugs and that was just the federal government! What do you think that figure would be if you included all the money that state and local governments have spent?
Step Three: Increase our income
This is a dicey one because if you increase taxes you run the risk of suppressing economic growth. Personally, I'm not a big fan of the income tax and would much prefer a national sales tax, but for the purpose of this post, let's assume that we have to stay with the income tax.
While it's true that increasing taxes does suppress economic growth, that's not to say that you can't change how different income groups are taxed. You might have heard Warren Buffet, the third wealthiest person in America's testimony to Congress where he pointed out that he only has to pay 17.9% in federal income taxes whereas his secretary, who earns around $60,000 a year, has to pay somewhere near 30% of her income in federal income taxes.
Well, not only is this not fair, it's also somewhere where we can go to increase the government's income. That is, we can rescind Bush's tax breaks for the wealthy, as well as close many of the loop holes in the tax code that only the wealthy can afford to take advantage of. There is absolutely no reason that a person should have to have an advanced degree to fully understand our country's tax code!
Also, as mentioned above, ending the War On Drugs not only would save us money, it could also be a source of income. Depending upon who you believe, the underground economy, which drugs make up a large part of, makes up anywhere between 15% and 50% of our total economy. Even if you take the most conservative estimate, this is still a huge potential money maker! Will ending the War On Drugs come with costs?
Oh yeah! Just as alcohol being legal comes with costs, so would having various drugs being legal come with costs. These costs however will be far less than the costs that we now pay both directly and indirectly by having drugs being illegal.
Step Four: Stabilize the credit and housing markets.
As I've written about before, the current crises in the housing market isn't because of any kind of irrational exuberance in that market. The problems in the housing market are being caused by the problems in the credit markets.
If you fix the problems in the credit markets, the housing markets will stabilize on their own because the fact of the matter is that our population is continuing to grow and these new people need roofs over their heads!
Again, as I've written about before, it's fully within the government's capabilities to not only fix the credit markets, but I believe that they can do it and actually end up making money for their efforts!
By stabilizing the housing markets, you'll increase consumer confidence. Increase consumer confidence and people will start spending money again, tax revenues will rise and as long as we keep spending in check our budgets will eventually balance and we will once again have a healthy economy!
Professor Bob has spoken......let the arguments begin!
R. B. "Bob" Mitchell
ValueList Real Estate Services, Inc.
Bob Mitchell is the president of ValueList Real Estate Services, Inc., St. Louis' largest discount/full-service real estate and mortgage company. To find out more about Bob, ValueList or our flat-fee listing program please feel free to visit our web page, valuelistre.com
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