Wednesday, July 15, 2009

How to fix the economy

It’s frustrating to have to turn everything into a sound bite to get a politician to listen, but I made my best effort this morning and sent it to the President and my Senators and Congressional representative.

Dear -----:

America already has more debt than it can handle.  The deficits will sink
the economy into a debt-deflation.

The stimulus, like the banking bailouts, is likely to go to the richest
Americans.  The government is broken.  The stimulus will not help the
people.  It is pork that will go to the well-connected.

America is a basket case.  Here's what we need:

1.  Health care for all, especially the unemployed, and a livable dole for
the unemployed to see them through the long crisis to come.  They will
spend the money taking care of their families and finding new jobs in time.

2.  Higher (much higher) marginal tax rates on the rich who have
manipulated the system to their advantage for so long.  I suggest 75%
rates on income over $1 million.  The rich need to learn to share, to give
back to the country that has treated them so well.

3.  An aggressive FDIC campaign to recognize and charge off bad debt in
the banking system.  Making rich investors whole on the taxpayers' backs
only exacerbates the debt-deflation, and risks turning America into a
neo-feudal society.  Reverse the banking bailouts.  Make Goldman Sachs pay
up—their profits were made with taxpayer money.

4.  Fiscal discipline.  The deficits need to be brought down under 5% of
GDP immediately, and to balance within 5 years.

America is a rich country.  The problem is not the amount of GDP, it's how
it's distributed.  America is now the greatest debtor country.  The
Keynesianism that worked in the thirties will sink us now. The government
is broken and can not be trusted to spend the public's money wisely.

These recommendations don't fit into either Republican or Democratic
molds.  As I used to tell my students, "make the adjustment."  A far worse
depression awaits us if we don't.

It's time for triage.  America is a basket case.

Reference:  The U.S. is nearing insolvency  (Sprott)


  1. This is awesome. Will send to pres, senator and reps as well.

  2. Why do you continue to advocate taxing those who are trying to get rich? This will simply prevent the middle class from ever approaching the wealth of the upper class. A wealth tax is much more fair than a higher marginal tax rate.

  3. We've never had an explicit "wealth tax" and aren't likely to get one soon. I'm using available tools.

  4. If a wealth tax is "impossible" then I would push for much higher property taxes for homes over $5m or something like that.

    The problem with very high marginal tax rates is that no one wins. Those already wealthy find ways to generate more income as capital gains, etc and can retire comfortably knowing it has become much harder to "catch them."

    Those (especially younger people) hoping to work hard and get wealthy now realize it is that much harder to accomplish and therefore will be inclined to try less hard. I fall into this category - I happen to live in New York and schools, property prices, etc are set by those already wealthy. If you now tell me there is a speed limit in this race, I am inclined to just not bother trying.

    If we are going to go through the pain of rewriting the social contract then we might as well redistribute for real - not the window-dressing version. I almost get the sense that you are already wealthy and therefore all in favor of making sure the next generation will never catch up.

  5. Disclosure: I'm not wealthy, but live within my means and have no debt to speak of. I was a grad student and teacher for a long time.

    American neighborhoods sort out by income level. Property taxes are determined and administered locally, and go toward local municipal projects and education. So increases in property taxes on the wealthy would go toward services for themselves.

    I grew up in the New York area. It is unbelievably expensive now. I'd suggest moving. I did.

  6. What about protectionism and make-work jobs as policy tools too?

  7. Make-work jobs have to be run by government--less efficient than direct transfers.

    Protectionism starts trade wars that hurt everybody.

  8. I still say fight the proper fight and push for a wealth tax. It is logical and although we've never used it, it would resonate with the American public if someone presented it properly. Very high marginal income tax rates may well generate social conflict without really fixing the problem. At least a wealth tax would fix the problem.

  9. Go for it. But you need to know that we have had much higher marginal tax rates on very high incomes in the past without social distress. I am working under the hypothesis that when you have a viable social contract, people at the top are willing to give back. Since Reagan, the public has been brainwashed that "greed is good" and taxing rich people more than the middle class is somehow un-American. It's not. Our top marginal tax rates were highest during our finest hours, I would maintain.