In the first half of this two-part article, I explained how the United States got into this economic mess we are stuck in. In this second half, I will offer suggestions as to how we should fix the economy. First off, spending cuts alone won’t solve our problems because the government will never make enough cuts. The American public has become too dependent on government spending for that to be a viable solution. Program cuts, debt restructuring, and tax adjustments are all needed to drag us out of this recession.
Raising taxes is the first step toward solving the problem. Yes, it’s true, I believe a small increase in capital gains tax and slight increases in income taxes for anybody making about $120,000 per year will be necessary for a time frame of say four years, to help sustain the government as it cuts down on programs and pays down the debt. While on the issue of taxes, I would propose taxing businesses less and increasing the minimum wage so that consumers will have more in their pockets to spend; consumer spending is better than government spending. Poor workers would then be spending money at businesses of their choosing rather than using food stamps provided by the government (read: your taxes). Another way low income citizens could receive assistance is through a negative income tax, which would allow for more agencies than programs like food stamps. However, fraud is likely to run rampant if a negative income tax is implemented across the board, indicating that it would perhaps be better to start with the first option and then try to implement a fraud-resistant negative income tax later on down the road.
Next on the agenda are the subjects of debt and default. The revenues garnered from increased taxes and freed up by cutting programs should be used first and foremost to pay down the interest on the public debt. Last year, Washington owed $359.8 billion in interest on the public debt. The U.S. is at $168.4 billion so far for the 2013 fiscal year. The government also needs to regulate banks and credit card companies more heavily, as they are the creators of debt. The banks, maybe with some government coercion, should restrict access to loans; they enable people to live beyond their means before eventually defaulting. And defaulting doesn’t help anybody. Furthermore, the federal government should not subsidize companies and industries that can’t survive on their own. Let them die. “Too big to fail,” is a dangerous phrase. It creates a moral hazard because the banks and companies will be more likely to give out riskier loans and undertake riskier business ventures when they can expect to be bailed out. Besides, hundreds of companies die in Silicon Valley for every one that survives, but no one will argue that Silicon Valley is a failure. Bailouts and high-risk loans need to go, and the national debt needs to be tackled.
The Nanny State must also be dismantled if we are to get back to our former glory. This point is critical. Program cuts must be made to free up money. Increasing taxes and cutting spending will not work on their own – they must be done simultaneously. The EPA and the TSA are two organizations that could be cut drastically and incorporated into related departments. The Department of Education should also be shrunk, for it should never have gotten to the point it is now. It receives tens of billions of dollars from taxpayers, just to send the money back down to the states. The cost of moving the money around is tremendous and entirely avoidable. Why not just let the states collect the revenue and use it accordingly? Another example of its inefficiency was its decision to appoint David Johns executive director of the White House Initiative on Educational Excellence for African-Americans and pay him $123,758 while at the same time making sequester cuts at the classroom level. The Department of Housing and Urban Development has also grown too large and should have its funding decreased. Furthermore, SNAP and other benefits provided by the US Department of Agriculture should be limited to the neediest of citizens. Just like Faust entered into a contract with the Devil and paid dearly for it, we have entered into a contract with a devil. Except this devil isn’t Mephistopheles, it is the Nanny State.
If the people of the United States don’t learn to live within their means, and if the government doesn’t start making decisions voters may not like, then people will face real hardship. If people don’t suck it up, do without some government services and pay higher taxes, they will pay dearly in the end. As a college student, I always tell people that it is better to live off of ramen, veggies, and milk for a couple of weeks (which isn’t pleasant), than to eat filet mignon one week and starve the next.
Adam Ondo | University of Rochester |@JoplinMaverick
The national debt is defined as the percentage of the GDP. At the end of WWII the national debt was 113% of GDP. Amazingly, America did not make a concerted effort to pay off her war debt. Rather, the explosive post-war economic boom of the 1950’s served to lower the percentage of debt in relation to the GDP. The best and fastest way to lower the national debt is to put people back to work and grow the economy. We are seeing austerity play out in the EU countries. Austerity is NOT working.
During the lead-up to the Financial Crisis, subprime mortgages were bundled into “conduits” and resold to Financial Institutions. Financial institutions all over the world bought these “Conduits” in huge numbers, convinced that it was a no-lose safe investment. After all, rating agencies like Moody’s was giving them high ratings and AIG was insuring the securities. When the dust finally cleared, it became obvious that the banks were leveraged in faulty mortgage security 40:1. In other words, every dollar the banks had invested in mortgage securities had been reinvested 40 times over.
In 2002 Georgia passed the Fair Lending Act. New York, New Jersey and New Mexico were in process of passing their own versions of the Fair Lending Act, when ”At the request of the banking industry the Office of the Comptroller of the Currency, a Federal Institution, ruled that the Georgia law was in conflict with Federal Law and could not be applied to National Banks. Because that would give National Banks an unfair advantage over local banks, the legislation was killed.” So much for regulation.
http://www.housingchronicles.com/2008/10/states-tried-to-warn-about-subprime.html
Please don’t lump all Americans into the living beyond their means group. Wages for lower and middle class working Americans has remained stagnant for the last 30 years. Meanwhile, the top 10% of wealthy Americans now own 2/3 of all wealth in this country. American workers are struggling to afford even the essential expenses of food clothing and shelter. Many Americans, especially Americans in their late 40’s to early 60’s found themselves out of work during the Great Recession through no fault of their own. It is much more difficult for older Americans to find work. Senior workers earn more money, have a better education and decades of career experience that work against them when they apply for a job “flipping burgers.” During the Great Recession many older workers were forced to liquidate their retirement accounts. For many Americans, saving for retirement has become a far-off dream.
Most Americans are proud and hardworking, struggling to raise their families. After a life time of hard work, raising a family and contributing to society, it is not too much to ask for decent medical care (you try buying health insurance at age 65 on a fixed income) and a Social Security check that you paid into for 40 plus years.
Please tell your grandmother, that she is a lazy moocher living off the “Nanny State.” I love to hear what she has to say about that. Please stop blaming the victim.
Someone gave someone a small little book on economics, once, according to a paper I read in college. It was the most reading value in a small space that you would find, was the claim.
The keystone course in economics at Carleton in 1977 was taught by Ada Mae Harrison, who described economics as eight or so ideas, none of which made sense on its own until you understood them all, a process she likened to juggling eight balls at once.
There is a more valuable book, one that I recommend on my own authority, not citing someone else’s authority. “How to Read a Book,” by Mortimer Adler, describes the structure of an argument as having three parts: a clear claim, relevant evidence, and a defense of the timeliness of the argument.
So let me ask you, what is so bad about a debt roughly the same size as GDP? More generally, what is the general state of the national economy and, as context, the global economy? It is impossible for me not to believe that the discretionary war we are engaged in, the “Global War On Terror” (though Obama has apparently quashed use of the “global” in the title), is a crushing weight on the economy. People trade at will. If terror rules the streets, people do not trade. The racism underlying the GWOT (epitomized by the “Jewish state” in Palestine) is a broad attack on human nature and its guiding spirit, human freedom.
I like to say, racism is suicidal. I find you cannot talk someone out of suicide, but you can refuse to go along when your companion wants to kill you along with herself. This might, in fact, be the way you convince her not to kill herself: when something finally penetrates her wishful thinking. Can wishful thinking be gloom and doom instead of pie in the sky? The essence of human freedom is the freedom to choose the worse: to “cut off your nose to spite your face”: to spit in God’s face: to reject the greater, ineffable reality by which one’s personal reality is anchored, in favor of a free-floating reality in which one is isolated in despair. What is Satan’s slogan: better ruler in hell than a servant in heaven?
Fear of God is the beginning of wisdom, and it makes you a better economist, by reminding you to see what is there before you smash all and start anew. Leadership is service.
The system doesn’t work, period.
Debt based fiat currency is designed to fail. You can play with policies and taxes all you want, but there will never be enough money to pay off the debt by definition.
If $10 is loaned, $12 is due. Perpetual debt.
I would suggest a book, “The Creature From Jekyl Island”, it quite clear explains the whole situation.
*clearly*