The fear is everywhere. If you are under 40 years old, and not a student of history, most of this is new to you. You probably are afraid that your entire world is about to come apart at the seems. And if you are an honest and intelligent person, you may be struggling to decide which candidate is the best choice to fix this mess. You struggle because it is clear, neither of these fine gentlemen posses a clear understanding of economics.
Neither John McCain or Barack Obama can be defined in any school of economics. Is Obama a Keynsian, a socialist, a new age capitalist? Nothing fits. Is McCain a follower of Smith? Does he believe Say's law? Who knows?
But we do know a few things. McCain wants to make a few small changes to regulating the economy, and Barack Obama is looking for an overhaul. Neither base a philosophy on anything you can find in the historical record. They are not men who study the past, and then make decisions based on what worked or didn't.
So how are you to decide who to vote for?
Suppose you have a fine automobile. A car you purchased just a few months ago. Now suppose it won't start. You are not a mechanic, and you have no idea how to fix it. Your two friends, Mr. Obama and Mr. McCain are offering to help. The problem is, they are not mechanics either, but you have no other choice. You have to pick one or the other. Without your car, you can't go to work, or take your kids to soccer games, or go to the grocery store. You really need your car. Who do you pick?
The budding mechanic Mr. Obama would like to change your car. He doesn't know what is wrong with it, so he is going to dismantle the entire automobile starting with the engine. Then he will put the car back together, and see if it runs. And he hopes that it not only starts and runs, but runs better.
Our only other choice Mr. McCain, doesn't know anything about cars either. His approach is to make a few tweaks. Perhaps put some gas in it. Then check the battery, and see if that works.
Who would you rather fix your car?
Obama hasn't read the manual, but he is a nice man who really seems to have your best interest at heart.
McCain hasn't read the manual either. And he is also a nice man, who wants to help you.
Does it matter who you give your car too? It sure does. With Mr. McCain, it may take awhile, but he'll probably get it running. If he doesn't he isn't likely to destroy the car. With Mr. Obama, it will also take awhile. And if he is wrong in his approach, your car will never run again.
Here is how you
should fix the car, er I mean, economy.
The crisis in front of us is nothing new. We tried similar bailouts during the Great Depression (and it didn't work), and we tried one in 1989 (and it did work). When trying to fix a problem it makes sense to look at history. But you must make sure the problems are the same.
First the myths: Because much of what you are being told, defies all economic principle and history.
1. There is no excess supply.
All supply creates a demand. It is not the other way around. There was no demand for the Ipod, until it was created. The price of the products (houses) may be to high, but supply is always equal to demand at some price.
2. No asset is illiquid.
See myth 1. When Paulson says these securities are not able to be liquidated, he is not quite telling the truth. What he really is saying is that the companes that own this debt won't sell it at the current price. This is a big difference.
How we fix the problemLiquidate the bad debt. This has generally been the quickest path to recovery. It involves short term pain, not long term destruction of an economy. There is nothing wrong with a little government intervention. As long as they don't push the debt on to me (and you) at an unfair price. Unfair means to high.
Liquidate the bad businessesThe CEOs, fund managers, and directors can whine all they want about how forces out of their control caused this problem. It doesn't make it true. What caused the housing crisis? Too much government intervention, (Hippaa, Americans with disabilities act, family leave act, restrictions on the supply of oil) and bad decisions by many people.
The over regulation on business caused labor and materials prices to rise. This pushed up the price of housing. Finally to a level that was not sustainable.
Liquidate the stocksOvervalued stocks should never be propped up. This is, "How to create a bubble 101". It never, ever works, and just causes the misery to be extended.
Increase the supply of goodsProduction and productivity grow economies. To increase supply, means an increase in jobs.
Decrease the minimum wage. This will lower the cost of labor, and lower the cost of goods and services. You'll make less, and be able to afford much more.
Radically de-regulate business. This type of regulation decreases productivity and increases cost.
Cut the capital gains tax in half, or better yet, to zero.
You will find no examples in history where this has not led to increased revenues to the treasury, and growth in the economy. Capital (money) is always the anti-dote to recession and depression.
Drill for oil everywhereOil is not a normal commodity. When oil goes up, everything goes up. When oil goes down, everything goes down.
Cut government spending.The people of The United States have more power in this election than they have ever had. Only vote for politicians who favor a five percent across the board cut in spending.
Cut Iraq war funding in half within sixty days.I don't know if the war was right or wrong, I don't think it's an easy question, and i really don't care. We've done what we can afford, and now we must go home.
Amend the Constitution to prevent new wars.Any time troops are committed to engage in combat, a declaration of war must be declared. When a declaration of war is declared, taxes rates on everyone, poor to rich, must be increased to pay for the war. This will put an immediate stop to adventurism.
In twelve to eighteen months, the economy will boom. The treasury will be re-filled, social security (which should be cut by five percent) will be saved for the baby boomers, and life will be grand.
This is a big problem. It is not a complicated problem.
Oh and here is one other little bit of advice to help save the country. You really need to watch C-span, and in particular the hearings about economic matters. We have some senators and congressmen, who are not only short of the best and brightest the country has to offer.
Sherrod Brown from Ohio, must surely be the dumbest individual in Washington D.C.
Bob Casey is a close second. Nancy Pelosi, Barney Frank, Christopher Dodd and Harry Ried look worse than deer in headlights. They look frightened. And all but two or three of the Republicans (Mike Pence and Michelle Bachmann are intelligent, thoughtful, and on the right track) are just as bad.
One final note: I know a lot of you progressives dislike Newt Gingrich. But you may wish to take a look at his ideas. I cannot find a flow in the plan or the logic. He is surely an arrogant man, but perhaps that isn't the worst trait in the world right now.