Chief
01-30-2008, 06:17 PM
http://www.forbes.com/columnists/forbes/2008/0211/019.html
by Steve Forbes
Uh-oh. Washington wants a stimulus package to rejuvenate our slowing economy. Usually such programs are full of nice-sounding but wasteful spending initiatives, as well as tax breaks that have a weak, one-shot impact on the economy. President Bush should therefore offer a deal: strong, pro-growth measures as the price for signing off on the usual unproductive stuff. But the White House has panicked and will go for things that won't solve the problems plaguing us. The President should recover his nerve and verve. Otherwise, he will blast away a positive economic legacy.
The most potent, constructive medicine would be for the Bush Administration to stop its Jimmy Carter-like weakening of the dollar. A feeble dollar means inflation--witness what's happened to commodity prices over the last four years, the most prominent being oil, which has almost quadrupled in price. This ain't a case of supply and demand. Four years ago an ounce of gold would buy you roughly 12 barrels of oil; an ounce today would get you roughly 10 barrels--that's hardly a 300% real price increase. A weak dollar also brings about economic distortions, such as the (now disastrous) subprime mortgage orgy. President Bush should announce that we will defend the dollar and make it stronger. The Fed should announce that it will let the federal funds interest rate float, at the same time removing some of the excess money it created in 2004--05.
The bottom line: No strong economy has a weak currency.
An additional and powerful shot in the arm would be to make permanent--and, indeed, deepen--the tax cuts on dividends and interest that expire in 2010. Reduce the levy on dividends and capital gains from 15% to 10% and you'd see a sharp boost in equity markets, as well as in consumer and business confidence. Business capital outlays would boom, as would entrepreneurial startups.
Former Bush economic adviser Larry Lindsey recently came up with a good idea in the Wall Street Journal to unclog the tightening credit arteries: Allow manufacturers and retailers to open up their own in-house banks or financial institutions that could borrow and lend money. These entities could make loans to customers that now frightened banks are increasingly loath to make. Unfortunately, approval for this type of entity has been paralyzed by the fight over Wal-Mart (nyse: WMT - news - people )'s attempt to open such a bank. Unions and banks opposed it, and the proposal has languished.
Congressional Democrats instinctively oppose things that actually facilitate progress. They'll howl that all of these proposals are a giveaway to the rich. So in exchange for the good stuff, give them some of their pet projects in return; for example, one-time rebates of the kind George Bush issued in 2001 and Gerald Ford in 1975.
The Donkey Party will want some other programs, such as temporary aid to states for housing assistance. These things are well worth the price for the short- and long-term power of tax-rate reduction, sound currency and unclogged credit arteries.
I don't agree with everything Steve Forbes says, but when he talks about the economy, I listen...
by Steve Forbes
Uh-oh. Washington wants a stimulus package to rejuvenate our slowing economy. Usually such programs are full of nice-sounding but wasteful spending initiatives, as well as tax breaks that have a weak, one-shot impact on the economy. President Bush should therefore offer a deal: strong, pro-growth measures as the price for signing off on the usual unproductive stuff. But the White House has panicked and will go for things that won't solve the problems plaguing us. The President should recover his nerve and verve. Otherwise, he will blast away a positive economic legacy.
The most potent, constructive medicine would be for the Bush Administration to stop its Jimmy Carter-like weakening of the dollar. A feeble dollar means inflation--witness what's happened to commodity prices over the last four years, the most prominent being oil, which has almost quadrupled in price. This ain't a case of supply and demand. Four years ago an ounce of gold would buy you roughly 12 barrels of oil; an ounce today would get you roughly 10 barrels--that's hardly a 300% real price increase. A weak dollar also brings about economic distortions, such as the (now disastrous) subprime mortgage orgy. President Bush should announce that we will defend the dollar and make it stronger. The Fed should announce that it will let the federal funds interest rate float, at the same time removing some of the excess money it created in 2004--05.
The bottom line: No strong economy has a weak currency.
An additional and powerful shot in the arm would be to make permanent--and, indeed, deepen--the tax cuts on dividends and interest that expire in 2010. Reduce the levy on dividends and capital gains from 15% to 10% and you'd see a sharp boost in equity markets, as well as in consumer and business confidence. Business capital outlays would boom, as would entrepreneurial startups.
Former Bush economic adviser Larry Lindsey recently came up with a good idea in the Wall Street Journal to unclog the tightening credit arteries: Allow manufacturers and retailers to open up their own in-house banks or financial institutions that could borrow and lend money. These entities could make loans to customers that now frightened banks are increasingly loath to make. Unfortunately, approval for this type of entity has been paralyzed by the fight over Wal-Mart (nyse: WMT - news - people )'s attempt to open such a bank. Unions and banks opposed it, and the proposal has languished.
Congressional Democrats instinctively oppose things that actually facilitate progress. They'll howl that all of these proposals are a giveaway to the rich. So in exchange for the good stuff, give them some of their pet projects in return; for example, one-time rebates of the kind George Bush issued in 2001 and Gerald Ford in 1975.
The Donkey Party will want some other programs, such as temporary aid to states for housing assistance. These things are well worth the price for the short- and long-term power of tax-rate reduction, sound currency and unclogged credit arteries.
I don't agree with everything Steve Forbes says, but when he talks about the economy, I listen...