Grabbed from Mish’s Global Economic Trend Analysis blog:
Things are looking pretty bleak. There is bad news in housing, the stock market, commercial real estate, jobs, and wages . Unfortunately, no matter how bad things are, someone always comes along to propose a “solution” that is guaranteed to make the situation much worse. Please consider the following ideas.
Punish savers and make them spend money: Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively
Assuming interest rates are reduced to about 1 per cent today, it will make little difference to savers if they fall all the way to zero. To all intents and purposes, income from bank accounts will be reduced to nil.
The next logical step, although it may be politically controversial, would be to do the opposite of what the Tories suggest. Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets – or simply to save less and consume more. In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.
The Case for Bigger Government
Thirty years ago, Americans were told that government was part of the problem, not the solution. We bet on the magic of the marketplace, but the magic proved illusory. Every major part of the economy – health care, energy, transportation, food and finance – is deeply troubled. Now we are ready to invite government back in to help solve our problems, if the price is right and the strategies are convincing. By spending more through government and treating government as a partner rather than an enemy of the private sector, we can potentially save vast sums in the long run through a more efficient health-care system, safer climate, more competitive economy and more secure country.
A big difference between the U.S. and the rest of the rich world is that for the past 30 years or so, Americans consistently rejected “government solutions” to the problems of health, poverty, education and the environment.
What Hath Big Government Wrought?
- It was big government that brought us Fannie Mae and Freddie Mac.
- It was big government that sponsored the war in Vietnam and the war in Iraq.
- It was big government that gave us nightmare problems we face with Medicaid and Medicare.
- It was big government that gave us overlapping hundred billion dollar systems in the Army, Navy, and Air Force.
- It is big government that sponsored 10’s of thousands of pork barrel projects and bridges to nowhere.
- It is big government that gave us the Davis Bacon Act and the insanity pf prevailing wages.
- It was big government sponsorship of the rating agencies that created the “AAA” rated securities that went to zero.
- It was big government that took us off the gold standard and illegally confiscated citizen’s money.
- It was big government that allowed fractional reserve lending and theft by inflation this is the root cause of a shrinking middle class today.
- It was big government that created the Fed, and it was the Greenspan Fed that blew serial bubble after bubble culminating in the housing crash we are in today.
Big government either created or made worse every problem we have today. Yet Time Magazine and free lunch proponents like Krugman propose an even bigger government is necessary to fix the enormous problems of an already too big government.
I’d like to add that the idea that “Americans consistently rejected “government solutions” to the problems of health, poverty, education and the environment” is completely fallacious and ridiculous. Medicare, medicaid, the war on poverty, from little or no federal involvement to No Child Left Behind, huge federal college subsidies, the increase of scope and power of the EPA, etc. Just because Americans didn’t jump on board as quickly as other socialist / fascist States doesn’t mean such ideas were rejected.