Dear Friends,
It seems to me that if the US government really wanted to get the economy moving again there is a well charted course. The problem is, the government does not like that course. It believes that if only it goes the way it wants, eventually it will prevail, regardless of the cost.
Cut taxes, rescind the health care law, stop all pending legislation to cap carbon, Lower regulation, cut spending, resume drilling, streamline the permitting process and sponsor public service messages promoting starting a business.
Cutting taxes should be a no brainier. The economy responds every time it has ever been done. In all of history there is no example where lowering taxes did not positively effect the macro economy.
If the government announced tomorrow that the health care law was abolished… the S&P 500 would gain 500 points in a week. The giant specter of uncertainty in the markets about how this legislation will effect the cost of labor will be lifted. Uncertainty in markets cool those markets. Raising volatility and lowering expectations.
Everyone who owns a business (if they are sane) know that if the cost of energy goes up dramatically their imbedded cost of doing business will also rise. They will have to raise their prices. The rise in energy prices causing the rise in consumer cost. They are inextricably entwined. If the government intentionally drives up the cost of energy through some power grab legislation the macro economy will suffer. Overnight inflation in the cost of energy will shock the economy. The reverberations will echo throughout the world economy. The impact will be spread out over a long time span. (So the people can better enjoy it).
Regulation is nothing but friction to an economy. It is selectively enforced and written with an eye to benefit the politically connected at the cost to the politically naïve. Regulation has become the epitome of Bastiat’s perversion of Law. Moreover regulation is seldom well written. This round of regulation was written by lobbyists outside the Capital grounds, (So the comings and goings could be kept secret). It is massive and fraught with carve outs for the Elite’s friends. (Wait and see).
It will do nothing to stop another fiasco but will drive up the costs to the financial sector. Remember, while the banking system was melting down, the regulators at the SEC were looking at porn. Porn that cannot be blocked from their computers due to their civil rights… or something. So this regulation will result in more government regulators. Who, I assume, will continue the great tradition of looking at porn instead of doing their jobs. Win win. If we suffer another melt down the government will simply create more friction for the economy and hire on some more people to look at porn.
Cutting spending, seems at first blush, to be counter intuitive. After all didn’t John Maynard Keynes claim that government spending drives up aggregate demand and thus keeps the economy going while private sector spending is at a nadir. He did but he was wrong.
Government demand is fundamentally different from private sector demand. In many ways. In marketing, in payment and where the money comes from. I have written many blogs on the subject. To go into it here would be redundant.
The drilling ban is a knee jerk response to a catastrophe. This catastrophe is a very rare occurrence and will drive a deeper understanding of how to deal with future catastrophes like this in the future. But in the meantime to stop all Gulf drilling is foolish. It will serve no purpose except as propaganda for the Administration. The economy of the Gulf region is negatively impacted. At a time when the US macro economy is in peril and the region’s economy is already damaged by the spill’s impact to the fishing and tourist economy. In this light this drilling moratorium is utterly stupid.
A good metric to use to determine if the legal costs have gotten out of control in a society is to compare the legal cost of a road project to it’s engineering costs. If the legal cost outweighs the engineering cost the legal system is set up for the benefit of the legal system not for the benefit of society. In this case regulation should be streamlined to lower the legal costs of doing business.
Today we are bombarded with public service messages. Keep off drugs, feed the pig, save a life don’t drink and drive, etc… The list is endless. What about public service messages that espouse the benefits of starting a business. Holding business owners as heroes in society.
Is it possible that these ideas could have a positive impact on economic growth?
