A better stimulus (part 3)

This is the final part of my series on the economic stimulus package. Part 1 was a critique of the federal stimulus program and Part 2 looked at one industry that, given a relaxation of restrictions currently impeding it, could help pull the country out of its economic doldrums practically single-handedly.

Back in Part 1 I promised to talk about the fluctuating dollar so I’ll lead off with that discussion. While much of who does well in the world economy depends on the freedom of their economic system, the value of their currency also plays a role. At present the dollar is near a historic low against the euro (granted, the euro’s only been around for a short time compared to the dollar) but the weak dollar affects the price of items that are imported, making them more expensive to us. It’s a factor that’s increasing the price of oil because exporters demand more of a weaker dollar in order to maintain the same purchasing power they could get with other currencies like the euro.

On the other hand, a strong dollar makes our exports more expensive and gives a leg up to other suppliers, particularly China. A happy medium between the two extremes generally serves us best, so we need to take measures to build confidence in our economy and give those currency traders a reason to bring the dollar up against other world currencies.

One knock on the American economy is the amount of deficit spending that takes place by our federal government. Because revenues rarely exceed or even come close to matching our spending, each year the American taxpayer is forced to pay more and more in interest payments to those who hold our debt – and if those debtholders ever called in the debt our economy would likely go into a death spiral. Nor have I even accounted for all of the unfunded liability that our federal government would owe to future generations, all thanks to what I consider the Twin Towers of social programs, Social Security and Medicare.

In addition, government spending tends to be woefully inefficient when you compare it to the private sector. I used the example yesterday of a windfall profits tax being slapped on oil companies and what could well happen to all of that capital – rather than being invested in proven energy solutions (with some set aside for research where the companies felt it best to develop new technologies) much of it would go to the overhead of a brand new bureaucracy and the rest could be frittered away on new, unproven products that one or a small group of companies maintain as their own and drive competitors who could provide innovation for these products out of the market via regulation – to refresh your memory, that’s known as rent-seeking.

Contrast that to what could happen if markets were opened up and the beneficial effects circulated through the economy. While some would naturally thrive more than others, the overall effect would be one of prosperity.

So it is with driving down government spending. On the one hand, the dollar could become stronger against other currencies, making imports like oil less expensive. (Even if we did completely open up oil exploration in this country, there would still be a period where imported product dominates but the share would become less and less as domestic oil began to flow.) Secondly, because government does little to create wealth, getting the vast majority of its monetary capital from the taxation of your monetary capital, a cut in their spending would result in more monetary capital staying in your pocket, which you can use on those goods and services you desire to purchase. Rather than sending the money to Washington and seeing a portion of it sent back to be spent on things the bureaucrats want the money to pay for after they take their cut, wouldn’t it be simple common sense to cut out the middleman?

Let’s return to the stimulus check idea. The main flaw I saw in the program was that it wasn’t completely inclusive. If you accept the premise offered by the commenter St4rbux on Part 1 that these checks are simply an advance payment on your 2008 tax refund that you’d otherwise not receive before 2009, that still doesn’t explain why many people who would normally have little to no tax liability still receive checks. Even more oppressive is the fact that those who do pay the lion’s share of the taxes in this country, people in and above the upper-middle income bracket, receive no stimulus check at all. Someone arbitrarily decided that this group, primarily comprised of white-collar workers and job-creating small businessmen, didn’t deserve the same refund as everyone else and since they’re not a large number of voters overall no one paid mind to their concerns.

If there’s one thing I’m about, it’s fairness. And while I’m on record as endorsing the idea of a national sales tax (like the FairTax) its adoption is years away, if ever – meanwhile we seem to keep running into a situation where those inside the Beltway decide that the government needs to do something to pick up the economy and we get programs like the one currently underway as people keep looking at their bank account and wait for that deposit from the United States Treasury to magically appear. When mine shows up it shows up (yeah, I’m getting one and I think I’m the last in line to do so based on my Social Security number).

When this stimulus program was first announced, I thought a much better solution – one which benefits the people who actually pay taxes – would be to simply suspend backup withholding for a period of time. This way, the money would be almost immediately available and there would be no checks to send out. Perhaps a small stipend check could have been provided to those without jobs (I’ve never gotten a welfare check and it’s been years since I received unemployment so I don’t recall if taxes are withheld from either) but the effects would have been spread among more people. And even if St4rbux is correct, doing a stimulus in this manner would have the same effect of taking away from whatever tax refund those who work their finances to assure a big check each spring would have received.

In distilling the arguments I made in a three-part series down to a couple closing paragraphs, my economic philosophy involves allowing the fewest market restrictions possible while at the same time government at all levels takes the least amount of money out of people’s pockets as they can. I believe the advantages to this philosophy are manifold and it’s a system that has allowed our society to become the most prosperous on our planet. Imagine if we waited on a government program to invent the automobile, the airplane, or the telephone – inventions that revolutionized cultures around the world.

On the other hand, government does have its uses but on the federal level those duties they have are spelled out by our Constitution. While the Declaration of Independence plainly states we have the right to “Life, Liberty, and the pursuit of Happiness” the possible pursuit of happiness we may receive by the transfer of monetary capital from the federal government to your wallet comes at a steep cost in the Liberty we would otherwise enjoy.

Author: Michael

It's me from my laptop computer.

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