How Do We Fix The Economy?

Yikes!

1. Freeze money market funds on a Friday before a long weekend, do not let anybody withdraw money for several months, and then only at 10% of their initial balance per month.

2. Pass a special law Friday night that puts the entire S&P 500 into expedited bankruptcy. All bonds, preferred stock, credit default swaps and other long term debt are converted to common stock at the Friday close prices, all 500 companies are given until the end of the long weekend to work out the details, and one week (where trading in those debt instruments is frozen) to make the conversions.

3. One year moratorium on corporate taxes and payroll taxes for everybody other than the S&P500, this is because the businesses smaller than the top 500 will need help competing with the newly debt-free companies.

4. Pass a much more extensive set of banking regulation, that un-does all of the deregulation of the last 40 years, updated for modern finance.

5. Put tens of thousands of bankers in jail for fraud

6. Close all foreign military bases, we can not afford them anymore

7. End all corporate subsidies, particularly farm subsidies

8. Single payer healthcare, I believe it will lower medical costs and we can't afford to pay the $42 trillion in net present value of the baby boomer medical costs as they age.

Good God why???!!!



Is this a joke?







How about we simply de-cartelize and de-monopolize (and then de-regulate) the baking and monetary system?



Frankly, you'd have to put the entire banking industry (including The Fed) in jail if you're going to call fraud.




Now you're starting to make sense.




But then you stopped making sense again. Just because you believe it, doesn't make it so.

The very first thing that needs to be done is government spending needs to be reigned in...to balance...even surplus. There are plenty of options for spending cuts including both military and domestic spending. Ending all subsidies is a good (but small) start. Ultimately to achieve significant reductions will require tackling the welfare/entitlement programs.

The surplus should be "spent" on tax cuts and debt reduction.

Once this is achieved, tax cuts and tax simplification can begin. Tax reform should both reduce taxation and shift taxation away from income and savings and towards consumption.

Next, the Fed needs to stabilize the monetary and credit base by slowly raising reserve requirements and reducing open market operations. Both of these will help keep inflation in check. Ultimately getting back to a sound money system would be best, but this would have to be achieved gently and gradually.

Then open up trade. This probably starts (ironically enough) with ripping up NAFTA (it is not a free-trade agreement in any real sense of the meaning of the word "free"), et al.

Finally, some (the more the better) level of regulatory simplification needs to be tackled too. Most regulations (contrary to what most people think) is designed to protect incumbent industry players and prevent real competition. Think "regulatory capture." It's real and alive.

There's no way to do it without pain at the consumer level. The longer we let it go, the more pain will have to be endured eventually to fix it.

The government MUST cut spending. The government MUST pay down its debt.

These cannot happen without eliminating some of the largess that the government pays out to citizens (and non-citizens.)
People are going to have to forgo their "government benefits" because the population as a whole (the government) just cannot afford to continue to pay them.
The people who CAN afford it need to step up to the plate and help out their neighbor PRIVATELY... Charity is not a government function!


edit:... MJ put more thought into his post... he's "spot-on" !!!

Absolutely right. The pain will increase exponentially if it's not taken care of now. The Boomers are retiring, Gen-X and Y cannot sustain the vast number of retirees on our meager earnings. People are going to be dying in the streets and starving like dogs for the next 15 to 20 years. I anticipate waves of crime never before seen in the world committed by people just trying to make it to their next meal.

mj - the whole reason we bailed out people was because the 500 billion in bonds that Lehmann issued was all owned by money market funds.

If we put the S&P through bankruptcy, we need to freeze money market funds so that little old ladies don't lose all their money in the temporary market crash that would result. If you don't freeze them, people will panic and withdraw their money at the bottom. Bankrupting the S&P means that money market funds all break the buck, and turn into stock funds. If we don't get rid of corporate debt, we have no way of dealing with our zombie banking system that is killing the country.

Spending cuts by government will only make the problem worse, we can't do spending cuts until we get real economic growth back.

I'm afraid you have it exactly backwards. Someone has cast a Keynesian spell on you.

Have any evidence to back that up?

Pretty much the entire history of economics and government spending.

too vague. If you want to know the end result of your plan, or something like it, look at Ireland. Austerity = shrinking economy = lower tax revenues, it is just a bad idea all round to cut back government spending during a depression.

There's plenty out there for you to read and study. In brief Keynesian economic theory is bullshit. It is flawed to the core. It is intoxicating. It is tempting especially for politicians (to whom it gives an excuse to spend large sums of money) and those who think that the government needs to "do something!" But it is wrong. Government spending does not revive the economy. Exactly the opposite. Think about it carefully (and logically) and you'll easily see why this is.

Yes, that is the problem with the economy. Too much corporate debt, particularly in the banking sector. The banks actually have more debt than assets - WAY more debt than assets, and they can't lend as a result.

And the bankers who should go to jail are the ones that committed fraud. There are tons of them - no new laws, just punish the lawbreakers.

MJ - I was editing my post when you were replying. Why do you think Ireland's austerity programs made their situation worse?

Wrong. What you are seeing is not the end result. It might be the short term pain or consequences but not the end result. The situation in Ireland is also more complicated than you (and Krugman) seem to assume.

The Real Lesson About Ireland's Austerity Plan:

( this is a lengthy but worthwhile read )





Here's another article that points out the complexities involved with Ireland.

This is not quite right. And, actually, is a somewhat Keynesian view. While it appears that the economy is driven by consumer spending, the reality is that the economy is driven by production. Production always comes first. The real problem right now is that production has been throttled back. There are several reasons for this. Some of it is general economic uncertainty, some of it is certainly regime uncertainty, some of it is concern about future monetary and fiscal policies, some of it has to do with a diminished capital base which is based on savings (deferred consumption.)

What needs to be done is for government, in particular, to get out of the way of producers. Stop inhibiting and punishing them.

Consumption vs. Production, or...The Anatomy of a Stimulus:



Consumer Spending Doesn’t Drive the Economy:



Production, Not Consumption, Drives the Economy:

Start a WPA which FDR started when he was the president. Put people back to work building infrastructure such as roads, bridges, highways,and etc.Regulate the banks and wall street.Let the Bush cuts expire and tax the rich at least 40% of their earnings they can afford it those making over $350,000 per year.Mainly start with the WPA Project now!

Bzzzt! Wrong answer. Try again.

Yes it is.



As to the business part of your statement, this is correct. But the overall gist of your statement is incorrect.



Correct. Mostly.



Eh, not as much.

The first three are irretrievably intertwined. Arguably the fourth is as well - consumers are reluctant to spend without confidence of a predictable income. That's difficult to have, given an unemployment and under-employment rate not seen since the 1930s.

Businesses can't plan for the future without some assurance of their future expenses. Therefore they can't invest, they can't hire, they can't do much of anything at all except survive until such assurances become apparent. The only factor that is preventing the US economy from a devastating collapse is an overall perception that Obamacare and next year's looming tax increases will be repealed, diminished, or at least deferred, after the composition of Congress's composition changes next week.

Look at the markets recently... bets have been made that some reduction of government's unprecedented expansion is on the horizon, but for now everyone is simply marking time.

If Obamacare is implemented as written, everyone's expenses will increase (except for insurance companies). The degree to which it will increase expenses is difficult or impossible to forecast. At the very least, tax reporting requirements will increase. If it is not repealed, small businesses will need to fire employees, but the number is unknown. Large businesses will either have to pass on increased insurance premiums, contribute more of their own revenue to them, or both. Lastly, they could elect to eliminate insurance altogether, and pay a simple "fine" for compliance, but does anyone really expect the "fine" to remain unchanged year after year? Of course not.

From Apple's recent 10-K:


This language, or something like it, appears in every company's annual report. At present, large tax increases for next year are certain.

Arguably, companies don't pay taxes. Consumers who buy their products do. The effect on tax increases on both companies and individual consumption is difficult to predict, but suffice to say that taxing an activity always results in less of it. So we're back to your point #4.

What about the apparent winners - insurance companies? Insurance is a low margin, high volume business. Smaller ones will disappear, leaving fewer companies to compete for lower premiums. It looks like the larger ones will succeed, but what happens when they're unable to compete with the nonprofit "cooperatives" encouraged by Obamacare? We'll begin see them disappear as well. The big problem with nonprofit entities is not only that they produce no profit... they don't produce anything.

Therefore... no one is safe.


Precisely.

FHA loans dropped from 10% of all loans in 1998 to 2% in 2008. It wasn't the government pushing the banks to make low income loans, it was the government deregulating the banks which allowed them to commit fraud which caused the problems.

Making myself a note that once time travel is perfected, send Terminator back in time to assassinate Keynes... it'll save us all a lot of trouble in the future... er, past.

You obviously have never owned your own business, because you don't understand the first rule if you sell products. The #1 thing: You must have a customer. If you do not have a customer for what you are offering, then you will not risk design, manufacturing and production... you have no business. Where these backward notions come from is beyond me.

I have. I do. But I also understand the fundamentals of economics. What I said makes perfect sense even if, at first, it seems counter intuitive.

Oh, hell no... to everything you said.

Why would I, as a manufacturer, commit to creating product if I have no buyers? Please explain.

Entrepreneurs commit to production all the time only on the basis of prospective customers. In fact it is this action of producing that turns people into customers. What you're not getting is that demand already does exist first (it always exists), but production is what turns demand into real products and drives the economy forward. Either way, in this context, you cannot drive an economy forward by simply giving money to the demanders (which what basic Keynesian preaches.) Honestly, read the links I posted. They explain this far more eloquently than I can.

The Dept of Education employs 5000 people. Its budget is $68 billion this year, up from $42 billion before NCLB. Programs like it have had dubious success if any, and impede and interfere with the proper functions of locally elected and supported school boards.

It educates no one. Kill it.

I agree with you guys on this. Things are going to be very difficult and the economy is not going to make any conventional sense of recovery anytime soon. It breaks my heart to put our elderly, disabled, dumb, etc out on the street but these entitlement systems were meant to be a safety net. These have ended up being abused and depended on. We need to realize that we don't each get to live in our own house/apt and are going to have to consolidate with family and friends to help take care of each other. Let us not forget the mentality of some that we can hand the military a blank check in the name of security. I know we will all supposedly be kill by suicide bombers if we don't stay in the Middle East but you can NEVER hand out blank checks.

The Dow is back to 11,000. Corporations are making record profits again. Wall street is fine. The biggest lesson they learned from this mess is that even with 9.6% unemployment, they can make a metric fuck-ton of money. Why bother hiring back all those who were fired when those remaining do more work for less money and are too scared of losing their jobs to complain about it or try to find work elsewhere?

How do we fix this country? Easy.

End the culture of GREED.

Are you trying to be the poster boy for this message?

The Dow is likely over sold at this point and due for an "adjustment." It is not a good indicator of economic health. It certainly isn't a good indicator of the future, which is what businesses are looking at right now.



That's debatable. More companies are returning to profitability, yes. All are making "record profits?" No.



Do you believe that by hiring additional employees they will make less profit or more profit?



How do you propose to do that? Is it only greed for money that you wish to end or greed for power and control also?

Apparently, we're not understanding each other. I asked if I had no customers, why would I commit to manufacture?

I understand how a business can or will reposition it's offerings to attract new customers with new needs or create new products at new price points, but if customers aren't buying, they aren't buying. Yes, it's a far-fetched example and in an open, competitive market there will always be some way to find a buyer for something, but one almost never... NEVER... commits to production on something that has no proven buyer. It's just not done. Look at all of Apple's offerings. They find areas of the market that are under-served or not served at all, BUT there is a pent-up demand for a solution. A solution, not a specific product.