Giving money away for nothing

Hans Bader of CEI is a blogger I’ve quoted before, and last week he posited that the Federal Reserve’s rate cut is truly going to punish savers and resume blowing up the credit bubble that popped this year, splattering effects like shrapnel throughout the economy. He brought up something that’s sort of rolled around in my mind for awhile but basically flew under the radar screen in this era of bailout.

A lot of us (myself included) have money socked away in a savings account that’s drawing pitifully low interest – even some of the best rates are about 3% and that’s not keeping up with inflation long-term. However, many may also be invested in a stock market where the Dow Jones Industrial average dropped by almost half in the space of about 14 1/2 months; possibly they could be in commodities which have also tanked in the last year. The only thing that seems to be going up is the tax burden of government, as even consumer prices have settled back into an almost deflationary cycle.

Normally conservatives call for a cut in the capital gains tax to help stimulate investment and promote growth, but with the current economic bust in full swing and many people needing to sell assets to survive it’s not at all a certainty that there would be gains to tax. That sea of red ink people see on their 401.k’s and portfolio programs may well actually serve as a deduction from income as a capital loss if they indeed need to hold a fire sale of their holdings. In turn, the tax collector would get just that much less because 15% of nothing is…nothing. And less income to tax means less revenue – but a larger refund because the withholding may have been based on higher expected income, which is good news for the recipient but terminates their interest-free loan to the federal and state governments.

Then we have the complicating factor of all the bailout funding finding its way to a point where it can help the economy. Unfortunately those who placed their trust in banks restarting the credit market have thus far been disappointed as they instead firmed up their bottom line or purchased smaller banks with their cut of the bailout cash.

And what of the states? They also want bailout cash as all but a handful of the 50 states are staring down the barrel of a budget deficit but aren’t inclined to alienate voters by raising taxes (which likely would be counterproductive in raising revenue anyway) or making cuts to popular programs.

Our nation finds itself in desperate times, and as a supporter of our incoming President noted in one memorable audio clip, “America’s chickens…are coming home…to roost.” It almost seems like we have to look back at the last few years and do certain things in reverse, particularly when it comes to the growth of government and branching it out into many areas where it doesn’t belong or can’t do anything about (think climate change.)

In that aspect, America needs a leader – someone to step up and say, “I’m willing to invest my fortune in America and will do my part to create wealth. In return, I want the tax and regulatory burden lowered on the producers and a shifting of items which are more properly done in the private sector back to where they belong.” One industry that I’ve argued could effectively do this job is the oil and natural gas industry, but there are others which might qualify – even the Big Three could do so if they were freed from the more egregious shackles of their union contracts.

Barack Obama has pledged to create millions of jobs through the repair and replacement of infrastructure. Fair enough, as there are needs in that sector which can and should be addressed; but when the project is complete where does the next job come from if the private sector is still prevented from stepping in because of tax burdens or excess red tape? The only answer then would be more government-sponsored infrastructure at inflated cost. Obama’s plan has the dubious potential of choking off other possible investment by being the 800-pound gorilla of monetary policy, another Fedzilla beast which needs more raw meat to survive on.

Unfortunately, hindsight is the only sight which can truly be 20/20 and we haven’t learned a whole lot from the past. A perfect time to really streamline and trim government would have been the time when everyone was fat and happy because those pencil-pusher jobs would have been absorbed by a growing economy. Now it’s a little bit more difficult, and we may have to put up with the situation we’re in for a little while.

The next time the worm turns (and it will) is the time to be ready to make the call. The private sector is getting leaner and meaner in bad times, so when we get back to the roaring economy it must become government’s turn.

Author: Michael

It's me from my laptop computer.

2 thoughts on “Giving money away for nothing”

  1. I truly doubt, Michael that you or I will ever see a streamlined and pared down government, in lean times or in fat times.
    I liken government more these days to a cancer, or a parasite that will only drop off when the host (the Republic) dies.
    The fools who have at the same time voted themselves the treasury and voted their rights away will never even notice.

  2. This is why conservatives need to create and tailor a message to the next two generations. I don’t know how old you are but I’m right on the border between Boomer and Gen X…in either case it’s too late to change my generation.

    It’s unfortunate that there’s few states who aren’t in the hole…maybe we should study what they’re doing correctly. In fact, that may not be a bad idea for a post once I figure out the states which aren’t having budget issues – bet Alaska is one!

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