How to End the Recession
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This is normally a column about technology and technology business but I can’t help noticing that the global economy is in the toilet and not much rational thought is going into fixing the problem. I don’t mean to insult the bozos currently pretending to run our economy or the new group of bozos about to take their places when the Obama Administration starts up this month, but my Mom could do a heck of a lot better job than either group and she’s 84 years old.
COME ON! At least do a better job than Mom!
So let’s solve the problem right here and now, get it fixed and out of the way so we can get back to pondering DRM and Windows 7 and whatever else is more interesting than saving the world economy. I’ll just present my plan. If you like it then start calling it your plan and send it to everyone you know. I don’t need any credit for this, especially if I turn out to be a bozo, too. But I don’t think that’s likely.
So here’s the problem. Coming out of a credit bubble we have no credit. People and businesses that HAVE money won’t lend any of it to people and business who DON’T HAVE money so the economy suffers, enters a period of deflation, everything goes to hell and we lose our houses. After that we’re set up for an eventual period of inflation that none of us will be prepared to handle, etc., etc. Against this the government’s idea is to spend a lot of money to stimulate the economy, putting even more financial stress on our kids and their kids through $1 trillion deficits into the sunset. And all of this is justified because of two ideas: 1) we don’t know anything else to do, and; 2) this way the same people who made the bubble are benefitting from its aftermath.
Hank Paulson is not Lucifer in this story, but he IS Belial. Bone-up on your Milton and figure that one out.
The solutions being offered aren’t good. It’s not that I am saying all these companies that have been judged as too big to fail should have been allowed to fail any more than I am saying those companies judged just right to fail ought to have been saved. I think there’s a little too much God-playing going on around here and what we really need is a simple solution that pays for itself along the way.
I want a revenue-neutral route out of the current recession.
And I want that route to involve a lot less government intervention and potential manipulation. Government hasn’t shown itself to be very good at fixing things so far and the plans being presented going forward don’t look much better so let’s just do it my way, okay?
What we need is a lateral solution because the current bag of tricks is empty and wasn’t that good to begin with. All this spending of money IN THE HOPE that it will inspire certain actions by banks and consumers just doesn’t make any sense to me. I’m all for rebuilding our crumbling infrastructure, but I don’t think we can do so fast enough to make much of a difference. We need to pack $2-3 TRILLION in spending into the next 12 months, ideally with as little of that amount as possible being paid for with government money.
Think about it. The point of economic stimulus is to stimulate the damned economy, NOT to spend government dollars. It’s much more efficient to get other people to spend that money and to spend it on most anything, it really doesn’t matter. Just spend it. Now how to make that happen…
A federal study of the 2001 tax year concluded that Americans were underpaying their federal taxes by $290 billion per year and had been for many years. Given that the Bush administration entered in 2001 and cleverly cut the budget for IRS enforcement I can guess with some certainty that tax cheating has become worse, not better. So let’s pin it at $300 billion per year or $3 trillion for the last decade.
My proposal to end the recession will cost $20 billion, not $775 billion. I would allocate $20 billion in extra funding for federal tax compliance in the coming year. I’d also open-up such compliance enforcement to private firms. That’s the stick.
The carrot comes in the form of a quite specific form of one-time tax amnesty. Taxpayers who have shorted Uncle Sam will be asked to come forward and report their crimes, which will result in no additional tax payments or penalties – none. If you are a tax cheat and don’t come forward, that $20 billion will go toward hunting you down. If you are a tax cheat and do come forward but lie about the extent of your cheating, that $20 billion will be used against you, too, so there is a huge incentive to be honest and a large penalty for not being so. This is not a free lunch: you have to report IT ALL. That should be about $3 trillion for the last decade, remember.
Taxpayers who choose to participate in the amnesty program will be still subject to random audits but in general their accounts will be wiped clean IF they within the next six months take 50 percent of the tax money they admit to having owed but not paid and use it to buy goods and services in the United States. These purchases would have to be documented. No investments or savings would qualify – just buying stuff. Sure you can then turn around and sell the same stuff, I don’t care.
eBay will LOVE this idea.
It would be a $1.5 trillion stimulus plan that doesn’t fix any roads but sure buys a lot of Jonas Brothers tickets or anything else that people really want. It would be distributed geographically much like the U.S. population. It would generate secondary taxes (taxes on income earned by the people selling all that stuff — many of them the original scofflaws if you think about it) that could still be used to fix roads and bridges. And it would put no additional liens on our kids.
That’s my idea, what’s yours?
I like the idea, in theory. Of course, it’s too radical to over be considered. Something like this can only be instituted by government, but it would be political suicide for whoever did.
As a better “first step”, I prefer your idea awhile back – liscensing banks, and having part of the qualifications being that “as a bank, one required role is to lend money”. I’m pissed that we’ve given banks $350 billion, which they have effectively sat on. Banks that don’t loan out money, a certain percentage each year to qualified applicants, would risk having their liscense revoked – similiar to FCC/radio station relationships.
You actually remember that column? Wow! Yes, really license the banks with lending quotas. But I think there is a role here for a well-designed tax amnesty, too.
We’re not all aging columnists, Bob, and it was only a few months ago!
I’ve been mentioning it to family and friends ever since as well.
It’s something that makes so much sense it’ll never get implemented here. *sigh*
The lightbulb idea would be a winner too.
This one is a little scary.
Hey Bob,
We’re all so glad to have you back. (Well, I am to be sure) You make my week – really!
So…
I left a comment below with the “Canadian perspective”. (Well, actually it’s mine, but I really am Canadian) It’s not meant to offend anyone. We’re in the same boat up here. (Only our boat isn’t called the Titanic.)
One issue I wanted to bring up is ‘consumption’. Isn’t it dangerous to hang the welfare of an entire country onto the ‘wants’ of individuals and corporations? “If everybody will just spend, we’ll be OK?” Hmmm, that doesn’t sound like a long-term solution. Also, taxing a country highly, like most modern industrialized nations do, is so wasteful! For every dollar going in, the entire entity of ‘government’ takes its’ cut, BEFORE spending it on programs. Really, there’s not much left to go around, so it’s always more efficient NOT to tax than TO tax. (Well, you know… there needs to be some tax) Leaving money in the hands of those that earned it is a good thing. Government is just too big, with too many people looking for handouts.
Where to go from here? Well, spending more money on failures is going to hurt long-term too. Americal could try many different recommendations from all over the world, but does anyone really think it’ll make a difference? Not here in Canuck-land. Sorry, no solution tonight… maybe tomorrow evening. I’m not finished speaking to my Witch-Doctor for commenting tonight.
Privatise tax collection?! Just like the Romans, eh?
And when you’re done fixing the tax system, stop the Federal Reserve from flooding the system with cheap credit again. That’s where the money for the credit bubble came from in the first place.
No, the money came from Over Seas, China mostly. That’s the main part of the problem: we no longer, as it used to be said, owe the money to ourselves.
Amen Scott, place the blame at the doorsteps of the Fed for this entire Fiasco. The solution to our economic woes is NOT Government interference, thats what got us here in the first place and continues to make things worse.
Bob: Goto youtube and watch any video by Peter Schiff for a reality check.
What CAN government do in the meantime? Drastically reduce spending to make themselves a smaller burden on us (US Economy), reduce taxes across the board in all areas, stop printing money.
For those readers who were hoping for a more magical solution, unfortunately it just doesn’t work that way. We tried that before with the New Deal and we got almost a decade of depression as a result. It didn’t work the first time, and it’s not going to work under Obama either, even if he wastefully spends money on green technology (see ethanol).
I see a couple of practical problems. One is that, as I understand it, a good chunk of that $290 billion isn’t from people evading taxes, but due to innocent mistakes within a complex tax system. I’m sure I’ve made mistakes, and have quite possibly underpayed, but I don’t know and certainly couldn’t work out when and how much.
The second issue is that a lot of that money won’t be available any more. If it’s a worthwhile amount (some thousands) then it’s a lot for a person to still have around. And if it’s not a worthwhile amount then, well, it’s not a worthwhile amount.
I’m another vote for your license idea though
Whoa, whoa, whoa. Bob, how dare you cite a Paradise Lost reference and give those of use with English Literature degrees working a programmers any sliver of hope that our degree is worth something? You are a cruel man, man.
Honestly, instead of the whole income tax thing, I’m a bigger fan of junking the whole system and putting in place a Variable National Sales Tax, wherein if you buy say, a Honda at $15,000, you pay 1% and if you buy a Porsche at $100,000, you pay 5%. First home is tax free. Any additional residence is subject to a tax. No tax on groceries, but more tax on dining out. The figures are just rough. I have no idea what percentage we’d need to replace the amount raised in taxes, although I’m guessing not that much based on how much we consume in the US.
This way, stop worrying about cheating on our income taxes, since there won’t be any (country did survive without a permanent tax prior to 1913) and then those who buy luxury items (ie upper class) pay their share. It’s better than a flat tax for income and while it’s completely tied in to the state of spending and our economy, that’s already the freakin’ case with our federal income taxes, although it’s far less fluid and able to adjust for downturns.
-miquel
I totally agree with a Consumption Tax. I like Bob’s idea, but another great way to save a LOT of money in the federal government would be to get rid of the IRS and take away the ability to cheat going forward. If the Consumption Tax was instituted, it would accomplish the same goal overnight, but then also save the $20B going forward as well.
I wouldn’t put too much faith in the magic of a consumption tax – we have those here in the UK, and we a thriving ‘black economy’ because of it. Arguably it’s a good idea, but it doesn’t magically solve collection issues.
While I agree that nearly every Englishman I speak to says that VAT is overcomplicated and has too many variations, I’d like to point to the GST (Goods and Services Tax) system used in here New Zealand. It’s comparitively simple: EVERY business transaction (including buying fries at McDonalds) gets charged 12.5% tax (one eighth). Citizens might be honestly confused about their tax obligations, but this sort of tax payment is pretty hard to miscalculate.
Sales tax is the most regressive form of taxation. Be careful what you wish for. Our current situation was really the result of a massive shift in wealth from the many to the few under Bush. A Sales tax based economy will only worsen the situation. Economic depression was, is, and always will be caused by such large, rapid shifts in wealth. Happened after the Civil War (between the States | Northern Aggression), 1907 and 1929. Keynes was right.
What matters is whether one cares. The Right Wing never does.
Keynes was right??? About what?
The solution to every problem is massive government deficit spending?
That a private central bank (in our case the Fed Reserve) can magically manufacture prosperity by printing money?
That deficits can be run infinitely?
I thought Keynes had been completed rebuked by this point?!!?
Interesting idea Bob, don’t think any government would go for it though. Thats the problem with governments they never take risks on anything radical. I suppose there is too much at stake if it backfires.
What makes you think that all the tax evaders have their underpayments sitting around in a bank account somewhere? More likely, it seems to me, the cash was already “spent” in the economy at large, either buying jewels and jets, or by reinvesting in the enterprises which generated the taxable profits in the first place. So the tax money the government didn’t collect is already circulating productively–according to your definition of “productive”, that is. Some might even say that the tax evaders, by bypassing the government and spending their dollars directly, are doing more to help the economy than the government could ever hope to do with those same confiscated dollars.
Good Catch!!!…But, I think the idea is more helpful in avoiding govt from emptying it’s reserves but still increase the “productivity”.
You don’t think government can solve the problem, but propose creating a tax enforcement agency that puts more money and power in the hands of the government?
The answer to failed regulation is more regulation.
Repeat until broke.
So we’ll tell tax evaders to take half their “winnings”, which they probably don’t have sitting around in any liquid form after all these years, to buy junk at wal-mart, which basically means we’ll be shipping most of that money straight to China.
Infrastructure spending is sounding better and better. I’ll take Obama over Cringley, with a helping of Krugman, please.
That’s probably a little harsh, but I don’t think there are any easy ways out of this. I also think we have an opportunity here, to invest in the infrastructure, education, and talent we’ll need to create the next generation of industries. Here’s to hoping we don’t futz it up.
I’m allowed to sell the stuff I buy? So how about this: I owe $50000, so does my neighbor. I buy his lawn mower for $25000, he buys it back for $25000. We’re both off the hook!
Your scheme makes it too easy to cheat, benefiting nobody.
Appealing in some ways. But ……
A much better idea is for the government to simply do nothing. Let’s think about the Great Depression….that was a bad problem and government got in and did something. And how long did this Great Depression last? Well over ten years. Current research is showing that the depression was prolonged because the government, instead of doing nothing, did something. It taxed, it protected (with tariffs), it spent, it created programs. It tried new things, and business was put at a stand still because of all the government was “doing” to “help”. Thanks, but no thanks.
So if we want to prolong the recession and turn it into a second Great Depression, the recipe has been laid out……follow the teachings of FDR…..and do something…..do a ton of experimenting with tax money and new programs and government spending, such that business will have no idea when it is safe to go out and start making money once again.
On the other hand, if we would like to have this recession END, we can do the opposite of what FDR did, and just have the government stand back and do nothing, creating a stable platform on which business can once again prosper and people can feel free to spend their dollars. Even the federal government of the USA will never have enough money to get us out of this mess. Only one entity has that kind of money……and the government needs to step back, do nothing, and let that entity get back to work fixing the american economy. And that entity of course, is the American people.
There is ample evidence to support your contention that FDR prolonged the Great Depression. I cited a bunch of it in a recent blog entry of mine. I agree that the answer is to do nothing. Couple that with Obama’s campaign pledge to radically cut government spending—I’ll believe it when I see it—and you could usher in a new era of prosperity.
The “meltdown” wasn’t caused by lack of regulation—anyone familiar with the financial sector can attest that it’s one of the most regulated areas of the economy—but by an abundance of regulation. Let businesses face the natural consequences of their actions by not socializing the risks.
(Also, what scot said about the Fed.)
Don’t forget that Roosevelt didn’t have a mountain of debt, either.
IF we didn’t have all this debt, I would be largely in favor of Obama’s infrastructure plans, if anyone but Obama implemented it. This would be a great way to get some work done on the cheap, since people out of work are more likely to take lesser pay. But I’m sure Obama will make sure the unions get their way, meaning $40/hr shovel holders.
But Bob needs to stick to tech. New tech usually leads the way out of recessions, but the tech industry is hampered by not being able to raise capital. Obama should do two things: push for repeal of SARBOX and impose a 5 year moratorium on capital gains. Not just long term, ALL capital gains. As for businesses, cut back/eliminate H1B visas to put American workers back to work. If the government feels it necessary to directly intervene, how about expanding Pell grants and use their newly acquired influence over the banks to “encourage” them to offer rock-bottom interest rates on student loans.
The Great Depression was caused by the concentration of wealth, due largely to unregulated speculation in the American stock market. It was ended by a MASSIVE government spending spree called WWII. As others have said, let’s not have the war this time.
As to the government actions, the primary mistake was to attempt to balance the Federal budget in 1937.
Depression is ALWAYS the result of most people no longer having any money to buy stuff. If you consider that an OK situation, then economic depression is not defined for you world view.
This idea that the Great Depression was caused by “concentration of wealth, due largely to unregulated speculation in the American stock market” has largely been discredited and is widely rejected by most economists today. There is no evidence to support this theory:
(1) The top 5% of the population earned 25.5% of the nations income in 1921. This number had grown to only 26% by 1929. That doesn’t really paint a picture of concentration of wealth.
(2) Corporate profits average 8.2% from 1900 – 1920 and remained at 8.2% from 1920 – 1929, debunking any claims of massive corporate profit taking.
(3) Employee wages rose during the 1920s going from 55% to 60% of corporate income.
(4) Consumers were actually consuming more as a percentage of the GNP during the 1920s. Consumption rose from 68% in 1920 to 75% in 1929.
As far as FDR programs for ending the depression–they were a failure. Even Morgenthau (FDR’s Sec. of the Treasury) admitted as much. In 1939 he said, “We’ve tried spending money. We are spending more money than we have ever spent before and it does not work.”
I believe it is true that government spending did get us out of the depression, but that was a little unplanned stimulus package called WWII. I guess we could try to spend that much money again, but I think it would probably ruin the country this time. After WWII, government debt was 120% of the GDP. Today, it’s around 64%. Anyone up for doubling the national debt to end the recession? Do we need a $10.5 trillion spending package?
Bob -
Interesting idea, but I have to agree with the poster above who notes that that money, especially for corporations, is long gone. Raising money to pay the taxes will stifle investment in other areas. Not to say tax fraud (which, unlike tax avoidance, is not legal) is morally or civically justified.
However, I have another idea that I think you and your contacts might pursue… letters of credit. It’s not a grand sweeping resurrection of the economy but it’s worth trillions in freeing up trade.
The problem, as you may know, is that if you’re not the size of Wal-Mart with existing bank relationships you either do business in cash or you pay a premium to a bank to get a letter of credit, in which payment to the seller is guaranteed if the terms of the sales and transport contract are met. But with banks disappearing and/or jacking up their guarantee requirements, many importers/exporters with perfectly legitimate goods and services can’t get backing for the purchase.
If you’re not familiar with the LoC process, it’s pretty simple but there’s a lot of documentation for international trade, and the LoC usually specifies that POs, invoices, export declarations, ocean manifests, import declarations (customs), insurance, yada yada must all be present AND match exactly for terms such as shipper, consignee, description of goods, and so on. This sucks, but it’s done for a good reason.
Your solution is to go to the government and say, my friends at Google and I will give you a mashup in 3 weeks of a new website, http://www.lettersofcredit.gov, in which any buyer and seller with a previous history of successful transactions may get a letter of credit, guaranteed with TARP funds, for a flat rate of $15. And you’ll offer a fast ‘n’ easy way for the parties to the transaction, with appropriate security, to use the same codes and terms so that documents match and meet upcoming CBP 10+2 regulations (again, simpler than they sound).
First, with a default rate below (say) 10% the government won’t lose out any worse than the other bailouts. (And you’ve got the cargo as collateral in most cases.) Secondly, you’re snatching a HUGE chunk of fee-based business from the banks, who will immediately have to start loosening their credit in order to keep some of the business. JP Morgan Chase especially will go nuts because they bought Vastera a few years ago and never got the return they expected. That’s OK, because your buddies at Google will add really neat cargo tracking and reporting capabilities to the site to drive Inttra and other consolidation websites out of business.
Make a few phone calls Bob. Save the country one business at a time. I’m a licensed customs broker by the way, though that doesn’t necessarily mean I’m not a bozo too .
Hey Bob,
I’ve been reading your columns for the last ten years, and am glad you’re still going on with them after leaving PBS.
I can’t seem to figure out how this is making you any money though…
What’s the plan? You always seem to have a plan, so I’m sure there must be one this time.
Adam.
Either Bob has cheated a lot on his taxes in the last 8 years and wants to get off scott free.
Or he has a bunch of junk he wants to sell, possibly his overpriced house.
Yes, you’re a bozo. That 1.5 trillion doesn’t exist. You are asking people and businesses to voluntarily cough up large sums of money they don’t have. The “stick” is that sometime down the line they might have to pay penalties. Yeah, that’s going to work.
Right now every business that I do business with, and the state govt. all have spending and hiring freezes on. That’s the reality of this situation. Every person I know is also in “cancel the vacation, cancel Christmas” mode. Nobody has extra money to send to the Govt. And, the big tax cheats have all their money offshore. This is “revenue neutral” only in that it won’t do a damn thing.
Macro-economics is definitely not your thing.
The part I like about your plan is putting more money into tax enforcement. Studies have shown that for every $1 in they get more than $1 out. That’s like buying twenty dollar bills for $19. Why wouldn’t you do that all day long (or at least till the return was minimal)?
I don’t think the amnesty / spending thing would work – people don’t have that money lying around.
Apart from the remarks already made about the concept itself, there is the question of practical feasibility.
If the FAA projects are any indication, by the time the IRS gets around to implementing the IT systems needed to attempt to make this work, the crisis might be well along into naturally solving itself…
Of course, just the cash injection to get it started would at least shore the IT industry in the meanwhile
Everything is broken. Bandaids won’t fix the artery gushers guys.
Every tax refund check, every federal rebate or incentive check I have received has been used to pay ever increasing school and property taxes. Slashing at one level results in increases in another. In my one income, middle class family that is how it works. Want to help the middle class? Want to make health care cheaper but more meaningful? Force school districts to live within a reasonable budget, cut the fluff and perks from the admin positions, not the education end. Every year since 1989 I dig deeper into my pocket for health insurance coverage and provides less for those dollars. The best dental policy offered by my work place covers only $2k per year after deductions. A person my age can eat that up and more in a single sitting. The only solution is universal health care, paid for by federal tax. Make higher education affordable. You always hear about colleges offering big scholarships? In most cases it just doesn’t pan out that way. Will a middle class guy making $50k a year be able to pay $26 a year to send their kid to a state college? I did, of course there was no money for anything else, including health care costs. I drove an 18 year old rust bucket car to work, held together with pop rivets and duct tape. My son has an interest in optometry. The schools start around $36k per year plus room and board. Most students take out loans to cover almost all these expenses, then stir in start up expenses and licensing fees. Now you know one reason why health care costs so much. The average Optometrist makes around $75k per year. Why even bother taking on that load when you can make more as a plumber? I keep hearing that this country needs more general practitioners. It isn’t going to happen with today’s model. Companies can not be allowed to back pedal on retirement promises. When a company freezes retirement plans and dumps retirement healthcare it gets dumped into the Medicare and Medicaid bucket, and you and I end up paying for the ability of a company to make more profit for a quarter and give the CEO a few more million a month to live on. We are destroying ourselves allowing big business to offshore everything, Have you noticed that even our off shored food stuff is coming in with poisonous by products. There is more of course but I’ve ranted enough. This country needs a strong enema.
Horrific idea. You need to catch up on your Mises reading! The Austrian school had this figured out a long time ago.
Eliminate taxes. Eliminate government. End the imperialism. End the market mingling and let failing entities fail. Sound money. True Laissez-faire.
Be careful what you wish for. In such a world, all those big strong black guys with guns will find you first.
Gee, are liberals finally figuring out that keeping money in the hands of people and letting them spend it is better than putting money in the hands of government lackeys so they can spend it?
Are liberals also finally figuring out that Obama didn’t have any other plan except bigger, more wasteful government, full of the same liberal cronies that have always infested Democrat governments?
Are liberals finally figuring out that putting Barney Frank, who last year denied that Freddie and Fannie were in trouble and created this mess by insisting that banks put in place minority quota systems for home loans, in charge of the bailout is a shamefully stupid idea?
Are liberals finally figuring out that I can’t leave my computer job, for which I’ve trained my whole life, to go pick up a shovel and dig worthless make-work government ditches, or meaningless bridges to nowhere?
Are liberals finally figuring out that Roosevelt only deepened the depression with his government make-work programs, and that it was only by removing the excess labor by putting guns in the hands of the idle and sending them overseas and out of the labor force that the depression was solved?
Are liberals, who now have to bear responsibility for this mess, finally figuring out how the world works?
>Freddie and Fannie were in trouble and created this mess by insisting that banks put in place minority quota systems for home loans, in charge of the bailout is a shamefully stupid idea?
Lie. The vast majority of the sub-prime and ARMs came from mortgage companies not subject to the Community Reinvestment Act. That Freddie and Fannie bought was due to competitive ambitions.
>Are liberals finally figuring out that I can’t leave my computer job, for which I’ve trained my whole life, to go pick up a shovel and dig worthless make-work government ditches, or meaningless bridges to nowhere?
You might be more productive with the shovel. Who knows? And it wasn’t the government that’s been sending jobs like yours to India and China, now is it?
>Are liberals finally figuring out that Roosevelt only deepened the depression with his government make-work programs, and that it was only by removing the excess labor by putting guns in the hands of the idle and sending them overseas and out of the labor force that the depression was solved?
Sending idle people to do useful stuff is more intelligent than sending them off to get killed, Yes? And a War is the ultimate Make Work Program, so what did Roosevelt do wrong?
>Are liberals, who now have to bear responsibility for this mess, finally figuring out how the world works?
Since the Right Wing has controlled one or both of President and Congress since 1994, and Clinton’s years were prosperous, and Reagan’s and both Bush’s were deficit ridden, and most importantly, the dirty dealing which caused this mess was the direct result of unregulated financial dealings (unregulated by Republicans, by the way), how, exactly, is this all a liberal mess?
There is only one slight problem with this: since people are already way in over their heads in debt, where is their 1.5 trillion to spend? What gives? I think that money is already spent.
How about getting the truly wealthy to help? They can start by buying the rest of us new cars. I call dibs on a Lamborghini. This outta kick start things.
Right! Another government Tax program to fix the economy. Exactly how has that been going so far?
How about this instead:
For all the “Credit Default Swaps” and similar derivatives extant today, or backdated to whenever, simply declare those contracts void. Let the banks who made bad loans go bust. Let there be foreclosures and repossessions. Let it all unwind.
Revoke all the bailouts, take the money back. Those that received it can’t pay it back? Take the company in its entirety into the “Soverign Wealth Fund”.
For all those congresscritters, government officials and pundits that supported revoking those banking regulations, imprison them all and sell their estates and their families into slavery to help recover some of the losses. They knew or should have known the consequences of their actions.
Have the USTreasury resume its responsibilities for the national currency. Abolish the Federal Reserve; it is neither federal, nor a reserve.
Of course, nobody listens to me, so whatever I say has zero meaning to the universe. But, you know I’m right.
I like your idea and I would want to combine that with the Fair Tax initiative. That would put your 20 billion all going towards finding the past problems (easily pay for itself) without tying up any of the current and future collection problems.
And, brilliantly as usual, you’ve solved one of the problems of what to do with the IRS immediately after the Fair Tax kicks in.
Sooner or later the bounty hunters will turn in to consultants. They will be able to make more money advising companies how to hide their tax liabilities from the government than they can make turning these companies in.
Hm. It is very tempting in it’s simplicity. That leads me to suspect their may be less innocuous implications. I want to think about it a bit before I comment, but I did want to congratulate you on a well-written piece.
This idea has a certain ring of truth to it. Its worth it as it is cheap and it works on a simple premise, “Pay up or else”. This can make it into the hall of “Keep it simple, stupid”.
Holy What! This is funny. First of all the IRS is flawed to begin with. The very way we pay taxes make it easy to cheat and harder to prove someone is cheating. Now, the cheats that matter are big companies and rich people and they have these things called lawyers. I think you see where this is going. How about fixing the tax problem entirely, tax consumption. If your rich and buy a boat you’ll pay more than a poor guy that bought a raft. If the FED doesn’t pull in enough money from that then maybe there should be less government. The FED should live within it’s means just like we do…
Taxing consumption will instantly turn everyone on craigslist into criminals.
Raising money from gas taxes is easy because gas stations are regulated.
Raising money from sales taxes is easy because consumers wont bother with a black market to save 5%. If you add 15% national sales tax on top of 5%, all of a suddenly it becomes much more enticing to do back room deals.
A flat tax is only good for the wealthy. Everyone else is screwed.
Novel Suggestion: Suck it up and take our knocks like we are going to have to do anyway. There is no avoiding it. However we can avoid increasing the size and scope of government at high cost.
We are only institutionalizing the ruling class with this “bailout”.
So, the poor schmuck, who is a 95%er (41% of the nations wealth in 2001, ucsc.edu), fudged on his charitable contributions fesses up, is forgiven, but is flagged as a ‘tax cheat’ for years to come and regularly audited. The 5%ers (59% of the wealth in 2001), who are the real tax cheats in my estimation, can afford a Belial^W tax-lawyer sit back, laugh and gain a few more percentage points. I don’t think so. Do you really believe the government is capable of fairly and efficiently running any kind of program, Bob? Do you have an example? I can’t think of one, ever, but then I’m a congenital cynic as well.
These 5%ers best beware of that ‘two handed engine’ in this life because there are always those ‘who only stand and wait’.
Bob,
Stick to IT unless you really want to get to know the stories of the 19th century British Economists, Marshall & Keynes, (great stories, much like Gates and Jobs).
As for ‘your idea’, I can’t say it can be mine, I don’t want to start a Cultural Revolution here, though you probably live the a region that would love to see those Yankees burn.
Study up on the difference between income taxes and wealth taxes, My idea is to cut income taxes to a pittance and institute wealth taxes of say, 20%. This is a once per dollar tax. If you accumulate $1 million, you pay 20% until you accumulate another million, then you pay 20% on that million. Loosing wealth does _not_ reset your wealth level.
And you need to be able to answer the question, where did the money go? (Hint: some was paper loss, but most of it was real, it got take out of the economy.) Answer, it went into the pockets of the people who sold investments to the chumps that tool the last round of losses. Then, they saved it! Poof, its gone. Make them spend it. But when expected prices and values are falling, why would anyone spend? They wouldn’t and you don’t either. We need an expectation of RISING prices so people send now and keep the money in circulation (else they will pay a wealth tax). And, how many of your closest friends are truly Dollar Wealthy? I’ll grant that you, Bob, probably have more of these friends than any of use your readers, but you certainly don’t fall into the Dollar Wealthy category.
your faithful reader,
Don.
I don’t think the economy can be fixed by government action. It can only be made worse. We have to ride it out. Government can, however, mitigate the damage just as it does with natural disasters.
My plan: Stop the bailouts. Redirect the money to extended unemployment benefits. The unemployed are the collateral damage of the economy, and unemployment is a temporary state for them. Most of them will return to the same or similar jobs when the economy recovers. Maybe not auto workers. They will also *spend* the money! They can’t afford to stuff it into a mattress.
Give them incentive to maintain their health insurance through COBRA by offering an additional monthly cash allowance (say $400 for individuals, $600 for families) that can only be applied towards COBRA. This will be a win in the long run because the health costs imposed by the uninsured are so high. And it may keep some big city ERs from closing due to the burden of treating the uninsured.
If there’s going to be mortgage assistance, it should go to people who are unable to pay their mortgage due to job loss first. This will slow the rate of foreclosures. I would prefer the assistance be a form of loan rather than a give away.
Having said all that, I think it is a good idea to borrow money for infrastructure investments when the borrowing is cheap. And it’s never been cheaper than now. But don’t expect that too fix the current crisis. If spent wisely, it will pay off in the long run, long after the current crisis is over.
Government action COULD fix this but it wouldn’t be the kind of action most are seeking. Repeal all laws that interfere with making a living. Pardon all debt for those willing to forego ANY debt of any kind in the future.
Let those who choose to move into small communities that are COMPLETELY self-sufficient. Instead of taxes let them go back to taking care of ALL the needs of the community themselves. If they want roads let them build them. If they want schools let them teach in them.
Before anyone says this is not possible today, the Amish and Mennonite communities are pretty much doing it except for traveling over some government-built and maintained roads. It was the norm not so very long ago before government interference moved so many off their farms and ranches and into cities and took perfectly good small school systems with teachers and no administration and turned them into the tax system used to take away those farms and ranches.
Read John Taylor Gatto’s book The Underground History of American Education to see what has been intentionally done. Only then will it be obvious what needs to be reversed.
If nothing else at least put the brakes on hiring ever more law enforcement of every stripe and turning our country into a giant police state. As Einstein said, “You can’t solve a problem with the same mind that created it.” Our Nation was once literate and prosperous. Now look at us.
Your government has borrowed trillions of dollars to try to steal the Iraqi oil. All that money has been wasted for all you got was a lot of dead bodies and destroyed infrastructure. The Government is technically bankrupt. It doesn’t have any money to stimulate anything. If it starts borrowing more just to spend hoping it will re-ignite Industry, things will get worse!
How about this:
LET US KEEP ALL OUR MONEY. Just stop withholding from our checks for the year. Keep spending like there’s no tomorrow (they will do this anyway.)
How could it possibly be worse than running all the money through politicians’ hands first (where a good bit of it will stick.)
As one Bob to another, Sorry, this won’t work.
The media and most commentators see this as a Dollars and Jobs (not Steve) based issue.
It’s really deeper than that. dollars are really only a way of counting things. Jobs are really only a way of getting Dollars.
The real problem is with production and consumption. They are out of whack. The US once made a lot more than we used of almost everything. We EXPORTED a lot. now, we IMPORT a lot. That is at the root of the problem. We are used to consuming a lot. But, we are not really paying for it.
It is really a value given verses a value received proposition. Instead of buying based on value given for value received, we are borrowing to pay for it all. Debt, both public and private is near an all time high.
Once, the US exported a lot of food, raw materials (iron, steel, wood, etc.) and manufactured goods. Now, we burn the food (ethanol), and import the manufactured goods (outsourcing) there is a lot less of the metals and wood products to export too. Most of the US exports seem to be ‘intangible’ items, like movies and music, these ‘Intellectual Property’ treasures do not hold any real value. When this last leg is removed, a rapid collapse is all that can follow.
Military might is working for now, but that is short lived, and always follows the real capital (materials, labor and infrastructure). What we are seeing is a transition.
It’s not just here in the US, Europe (France, Germany and Britain), the Orient (Japan, Korea, China to a lesser extent) are seeing it too.
When the dust settles, we will have massive debt, and no way to pay it off.
Oh, wait… That’s how we got into this mess, isn’t it?
“Bingo” YetAnotherBob! You hit it right on the nail.
Here in Canada, we have been saying for years that.. because of the situation you described, Americans can’t make an honest buck anymore. Look at the .Dot.com era, then the stock market era, then the real estate era (now kaput)… what’s next? I say it’ll be food. Perhaps that will be the next pump-and-dump sham that American schisters will attack. If you guys can’t make anything anymore, what other way do you have for making money except by deceptive or criminal activity. Hey, we feel sorry for you guys, we know you’ve all lost your way in life… and we hope you all find yourselves sometime soon, but boy… do you guys have a headache coming!!
[...] Cringely is a very smart guy, and I generally like his technology columns. His latest blog post on the current economic crisis is… well… there’s no nice way to put it: it’s [...]
Give every tax payer a debit card with say $50,000 on it and have it expire in 6 months or say 2010. Products or services use only….. no cash disbursement.
Since it seems there’s a lot of haphazard economic bokum here,
i’ll toss mine in: It’s all about confidence/recklessness, which was
reflected in the inflated values for housing and junk we were accum-
ulating for a while there but which it now turns out we’re not so con-
fident about or desirous of, so the value of that junk is deflating and
there’s just not enough “value” left to extract from the margins on
buying and selling that junk at their new prices to turn around and
plow back into more junk, so the whole monetary economy is evap-
orating and there’s not enough left to go around into all the pay-
checks that were formally being printed, so everybody looks around
and sees how badly off everybody else is/thinks he is and the value
of stuff we figure isn’t going to help keep our own financial day of
reckoning at bay gets even more depressed
So my dour conclusion is that the “irrational exuberance” we once
demonstrated buying up junk has turned to pessimism that won’t be
staunched until we all decide that we’ve collectively adopted a de-
pression-era-reminiscer’s level of thriftiness–or, at any rate, a level
that we positively are determined not to live below as a threshold
standard of living–and then we’ll just decide we can’t be *that* poor
and get the money out from under the mattresses and start to con-
sume again
But it’s all in our collective heads, and it’s going to take some turn-
around in the rhetoric of those we see as the economic trustees
who’ve made a bit too good a case that the country is facing eco-
nomic doomsdays to this point. And then, hopefully, on the other
side of this whole ordeal, somebody figures out a better model
for growth here and abroad than to just consume junk before we
get all caught up in it again, since the value of junk will always be
very volatile and a rickety base for any economy, sorta like the
price of oil
Entertaining idea, sell the sinners indulgences. It could be a part of a solution. A bigger problem is the conviction of “Business creatures” that Americans will not work (For as little as they’re willing to pay). Trade must be done with the long-term interests of the United States in mind.
Perhaps the worse idea you have ever published. In fact the exact opposite of your idea would likely work better – eliminate the IRS.
Odds are that money’s already spent. If that’s true, and your proposal is sound, then if they had paid their taxes instead, the depression would have come sooner and harder as that money would have been drained from the economy instead of being spent on buying things.
However, if we rolled back government spending to Y2K levels we’d be able to just get rid of the income tax*. Imagine the economic benefit of all those people spending their withholdings every two weeks. It’s automatically distributed into every microeconomy in the country and it’s a political winner. Now, _that’s_ stimulus!
*GFGI
The legalisation & taxation of Marijuana (& potentially many other similarly non-addictive low-risk psychoactive substances) is being recommended from a healthcare & damage prevention basis alone. Add to this the massive financial benefits of doing so & it becomes a pretty persuasive argument regardless of your personal opinions of these substances.
It seems to me, that by simply legalising & taxing these substances we could divide the massive revenue it would create between healthcare, drug-education & still have enough to plow a tonne of cash into whatever economic stimulus plans were deemed necessary.
And hey, even if your plan didn’t work, people would be far too wasted to care about the economy anyway…
Very interesting idea. I like the fact that you put out ideas as that’s what this country needs now. People willing to discuss alternatives.
My feeling is that this system would simply allow lobbyists to get the tax laws re-written again to make new loop holes for companies and individuals to follow.
I personally am no expert, but I don’t see an alternative to simply restructuring the tax code (whether it’s sales, property, income, whatever) into such a simple manner that it becomes that much more difficult to circumvent the system.
No way politicians are going to show that they are “increasing” taxes though. Just isn’t going to happen in the same way that they will never “fix” Social Security. It’s political suicide and there just aren’t enough voters that understand what these major issues really mean. It’s a “won’t happen to me” feeling and it’s a shame. Our kids are going to be severely screwed and we don’t want to admit it.
Keep up the suggestions and debate. That’s the underlying idea of this country after all.
Bob,
The problem with our tax system today is that it’s too complicated. Every politician in office feels the need to “help” us by adding one or two more special tax exemptions for people they deem worthy. The end result is a tax code hundreds of thousands of pages long. Its complexity makes it extremely difficult to comply with, and this difficulty results in high compliance costs. As you said, it would cost us at least $20 billion just to comply with it fully. That’s in addition to the tens of billions we’re already spending in compliance costs (see the annual revenue of the IRS plus the salraries of all tax attorneys) and even you can’t provide any assurance that at the end of the day we’d be fully compliant.
A better idea would be to trash the whole thing and switch to the Fair Tax. Have you heard of this plan? It’s been circulating around for a while, and it’s gathering momentum. You should check it out. http://www.fairtax.org
But if the question to be answered is how to fix the economy, all of this discussion of the tax code is not really relevent. In order to fix the economy, one must first understand what caused it to go haywire in the first place. The short answer is that it’s a combination of Fannie Mae, Freddie Mac, and the Federal Reserve.
Fannie and Freddie distorted the housing market when they started buying up mortgages from banks and backing them implicitly with taxpayer money. Thie removed the risk of home lending, which caused a rapid credit expansion much bigger than the market would have allowed in lieu of government involvement. This seemed like a great thing for a while, because it means everyone could get a loan for a house.
The unintended side effect of this plan was that people borrowed huge amount of debt and bid up the prices of houses. House prices went up, up, and up some more. This compounded itself with a speculative bubble fueled by investors trying to make a quick buck. House prices kept going up until they reached a ceiling above which they could no longer rise.
Once that happened, the last round of home purchasers realized they had borrowed more than the houses were worth, so they just stopped making payments on their mortgages. They started going into default on their loans. The banks started foreclosing on their houses and attempting to sell them. This flooded the market with sellers at a time when there were already very few buyers. This snowball effect made the house prices go down, down, and down some more.
So now the banks have ended up holding the hot potato. They own a whole lot of houses, and no one really knows what these houses are worth. Thus our current situation. This story has largely gone untold by the media, for reasons on which I won’t speculate here.
Armed with an understanding of the real causes of our current situation, the right course of action is self-evident. The whole chain of events began with Fannie and Freddie. The solution is simple: liquidate them. The government should sell all of Fannie and Freddie’s assets to the highest bidders. Once that’s done, keep the government out of the lending business. Real estate prices will naturally return to a stable equilibrium, and we’ll avoid ever getting into this mess again.
I also mentioned that part of our problem is the Federal Reserve. Bob, you mentioned deflation and inflation as part of the problem of the economic rollercoaster on which we find ourselves. I couldn’t agree more. In order to combat these problems, one must first understand their causes. Deflation and inflation are merely fluctuations in the value of the dollar. The dollar is a commodity like any other. Its value is determined by supply and demand, just like verything else. The Federal Reserve is the only entity in the country with the legal authority to print money. Fluctuations in the supply of the dollar can only come from one place, the Fed. They are solely responsible for inflation. For more information on that, please read “The Case Against the Fed” by Murray Rothbard.
-Mark
Why not have a quarter a beer tax added to all alcoholic beverages. And a nickel a cigarette. And Apply this tax directly to paying off the debt and only the debt. No letting politicians use it for personal projects. I think America can drink it’s way out of debt in about 2 terms.
Nice take. I think the biggest issue with people owing taxes is that the IRS has one opinion of how much the taxpayer owes and the the taxpayer has a different opinion. Therein lies the problem to begin with. So even if tax cheats and tax frauds came forward and admitted to totally cheating on theri taxes, the IRS would very likely still have a disagreement about how much the individual owed. So claiming you cheated on taxes would lead to further investigation into exactly how badly you cheated.
Don’t get me wrong, I applaud the idea of trying to solve this, but giving the IRS, or even private collections/investigators, a working list of known tax frauds to go after is probably not a good idea in the long run, either for the cheating taxpayers or for the already feared IRS.
Hmmm…at first glance this plan sounds plausible. BUT…
I do not like the idea of “rewarding” criminal behaviour
just because the perpetrator “admits” to wrongdoing.
Where do we draw the line? I mean, the over-crowded
prisons costs society billions to house convicts…so,
extrapolating Bob’s notion, if you commit a felony crime,
doesn’t matter what…burglary, theft, rape, murder…
and just come forward and ADMIT your crime, all is OK???
While this is very “Christian” in theology, it just doesn’t fit
with most people’s notion of “justice”.
Remove the tax loopholes, tax all income the same, be it
“capitol gain”, investment or via gainful employment…
might offer reduced penalties for tax cheats that confess,
but they should still pay their taxes, just like the rest of
us had/have to do.
That’s not a very “Christian” philosophy, or very Biblical. Biblically, people are held to account for what they have done – even New Testament. The consequences may change, but accountability is held either way.
Interesting idea, but it won’t work. Why?
1) Most of that money that is owed is vapor. The people don’t have it. Those that do have it, likely have the congressional connections to ensure they are exempt from giving it any way, or they are tax evaders (you know, the ones that build fortresses and don’t believe in the income tax, therefore they don’t pay it, but they’ll sure as hell give Uncle Sam a stand-off and a lot of bullets if he comes trying to collect) that will never file anything to start with.
2) Have you ever looked at the tax code? It’s such a mess that it would be neigh impossible to say for sure that you only owe X and not even a dollar or hundreds of dollars more. Also, not everyone on the list “you owe Uncle Sam Y” actually owes “Y”.
So between the two, it’d be a failure from the get go.
However, your “stimulus” package, just like all the others out their, fails to take into the “why” the spending is going down. It’s not simply a matter of people can’t get loans. It’s also a matter of the financial markets readjusting to ensure the people that get loans really should have them. That also means that they will be putting a lot more weight on the applicants debt-to-income ratio to make sure they can pay back that debt.
The problem right now – the debt-to-income ratios are too high for too many. For far too long we’ve been spending more than we’ve been taking in. A recent study showed that for every $1USD that came in, we were (on average) spending $1.25USD. That’s unsustainable, and should, in a better economy, be around $0.75USD, but never in a good economy should the average be above a 1:1 ratio of income-to-expense.
That is why no stimulus package is going to solve the problem. You can spend billions, trillions, but you’re not going to spend the nation out of it. More debt does not resolve debt.
So, here’s a plan that will work – guaranteed:
1) The gov’t can spend money, and encourage others to spend money. But not to put money in tax payers hands or buy out companies, etc. (e.g. stimulus). Rather, the money should be spent on buying stuff and keeping people employed. Nothing else. This is long term spending, btw.
2) For people that are having problems, put them through debt counseling; and require a certain part of their paycheck to go towards paying off their debt. Freeze their credit cards, and freeze the fees the credit card companies are charging them. Get them into a situation where they can actually pay off their debt ON THEIR OWN.
#1 is the reason why all the infrastructure work done during the Great Depression helped. Not only did it get the infrastructure the nation needed, but it ensured people had jobs and could pay for what they needed. At that time, it worked just to give people food and housing. Today, however, we’re not having the rampant unemployment+starvation problem; but unemployment alone means people can’t pay their debts which will eventually lead to that problem. And the problem right now is debt – national debt, commercial debt, AND (especially) PERSONAL debt.
Now the economy will work itself out in the long run WITHOUT any intervention. In doing so, it will also bring deflation WHICH IS GOOD. We need deflation, and anyone saying otherwise is being arrogant about economics. You will never have inflation without deflation – it’s just a matter of time. The more inflation there is before a deflation cycle, the harder and bigger the deflation will be. If we were smart, we’d work to minimize inflation and ensure that every few years we’d have an equivalent deflation cycle. BUT our economists are too arrogant to do so, and every politician will only work to ensure that deflation doesn’t happen “on THEIR watch” (it can happen on the next guys watch so far as they are concerned).
One of the biggest problems I see with all of these good ideas is that it relies upon the government to implement them. I beleive that our politicians are not working for the people. WE let politicians get away with not doing their job. See the Bill Moyers show from last Friday where they had a report how the earmark bill was to make the earmarks transparent but ended up allowing a loop hole. How can we expect people to be open and honest, when some of our elected officials cannot be. And the politicians think this behavior is ok. I was encouraged by our voter turn out this past November but it is still low. (62% according to one report http://www.nonprofitvote.org)
The other concern I have is allowing banks to be corporations that only operate to increase share holder value. I am all for capitalism, but it seems that the banking industry should be on the side lines given their role in everything.
Thank you Bob for all your work at PBS and for continuing your blog!
Your idea to stimulate the economy is to remove $3 trillion from private citizens? How does that help at all? Sounds like a recipe for deflation.
When you started talking about tax collection, I thought you were going to suggest the exact opposite: cut tax enforcement even more to leave more money in the private economy.
Every dollar you tax is one less that could be spent, as you say, on Jonas Brothers tickets. Every dollar you tax is spent inefficiently by the feds on wasteful and needless programs.
Why not leave the earned dollar with the taxpayer so he can invest it, spend it, or otherwise make it useful?!
If you’re concerned about tax evasion, close the loopholes by simplifying the tax code.
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Not to be a Negative Nancy, but you are operating under the assumption that people who cheated on their taxes actually have 50% of the money they gained from tax cheating sitting around. If they cheated once, they’ve probably cheated a lot, which means they probably owe Texa$$$(Texas-Dollars). I doubt you’re going to get a lot of people involved in the plan if they have to bust their budget.
Anyway, this is just a way of disguising a government mandated increase in demand. I’m pretty sure that microeconomic theory shows that this sort of mandate generates a negative externality(pushes the economy away from equilibrium).