Friday, September 17, 2010

How to Jump start the economy

Now that the collective wisdom has firmly rejected the uselessness of Keynesian economic policy, it is time to turn to the Republicans, whose most often mentioned strategy is to roll back federal spending to 2008 levels.  That isn't going to get it done either.

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Kimball Oil Field, 06/1972
Kimball Oil Field, 06/1972 by The U.S. National Archives, on Flickr

GDP has returned to 2007 numbers, but we still have 10% unemployment and closer to 20% underemployment. These numbers are the simplest refutation of the Keynesian thinking that we have a demand problem which 'stimulus' will somehow prime or fix. The problem is not aggregate demand; GDP has returned to pre-recession levels. It is investment and adaptation to a new economy.

Freezing federal spending like the Republicans want to do does not spur investment and adaptation. In fact in the short run, it will make the situation worse by forcing some public employees to join the ranks of the unemployed. Don't get me wrong. That must happen. But it won't create an environment that induces hiring by the private sector. Following are the policies needed to get to 500,000 new jobs a month in less than a year.


The US may not materially change the flow of oil in the world, but it can add up to a million high paying jobs in the energy sector very quickly. Clear the way for fossil fuel exploration and development. Then transfer that authority back to the individual states so the federal government and its special interests can no longer interfere.

The reality is that 96% of our energy comes from fossil fuels, and barring a transcendent invention, that isn't going to change in 10 or even 20 years. The clean little secret is that all emergent advances in energy have been in more economically and safely extracting and converting fossil fuels to energy sources. The rippling effect through the economy of re-opening the energy sector, including refining, would be almost immediately tremendous.

But we're not finished. Nuclear energy is currently uneconomical in the USA as constituted by regulation. There is something fishy in the Washington kitchen given that most of the world find it an economic reality. We need to find out what the problem is and fix it before our existing reactors wear out and force us to purchase even more oil. Technology is advancing in nuclear energy. America is not participating.

Lastly on the energy front, all subsidies for ethanol must end. It takes at least 5 barrels of oil to produce 6 barrels of ethanol. It is a catalyst, not an energy source. It does not reduce carbon consumption. It drives up the cost of foodstuffs. It consumes subsidy dollars to big business. End it.


Next, the US must immediately roll back the draconian laws which are chasing jobs out of the country. Contrary to popular opinion, we can compete with any country on earth if we don't have both legs shackled to the floor. Those regulations cover a broad array of federal departments.

First, we've been living with the EPA and the Super Fund so long that we forget how fundamentally it changed the manufacturing and business landscape in the country. Those laws made it impossible to sell millions of acres of land and assets. It also squelched further investment on those properties. We all want to reduce pollution, but like the draconian laws that delayed clean-up in the Gulf and prevented foreign skimmers from helping us, there is common sense and then there is pure, unadulterated extremism bordering on insanity.


Along with EPA roll-backs, much of the zoning in our cities needs to be cleared away. If the global warming crowd was really serious about reducing carbon, it would be viewing the zoning laws for what they are; an obstruction to logistics networks, congenial living and working arrangements, community development and safety. But zoning not only forces a car ride to work, a loaf of bread or a beer. It obstructs inner city renewal, commerce, investment and trade. It has to be rolled back. Zoning and regulation are the number one cause of inner city stagnation and the horridly crumbling infrastructure, crime and unemployment that results.

Employer based costs

The last cog in chasing jobs out of the country are the ever increasing behind-the-wage costs imposed on employers by the federal government in its never ending quest to feed its bottomless appetite for revenue. Anyone lucky enough to pay 12% into a private insurance program for their working lives would retire rich, able to gift their descendants a sizable nest egg. The amounts would be so extra-ordinary that it would catapult the working poor into a new tax bracket. The present state of social security is beyond criminal. It must be fixed and made to conform to the precepts of private enterprise so that it will build security and wealth for its contributors. It is currently an illegal Ponzi scheme.

This same thinking goes for employer based health care. Employers must get out of the health care business. The consumer must be put back in charge, and there are a number of ways to accomplish this transition that are revenue neutral for the employee.

Markets can drive down the cost of health care by almost half while increasing quality and innovation. That is what the American economy does best. That is what made the USA the powerhouse of the world, raising all boats across the world. That is what technology and free markets do. But it must be allowed to work; no regulation can substitute for markets. And any subsidy must be individual based rather than controlling institutions and regulation.

Therefore repeal of Obamacare must be immediate. The market on health care should be aggressively opened, including more competition, public prices and information by producers, and higher deductible insurance plans that get rid of millions of third party transactions costing hundreds of billions of dollars. The almost immediate decrease in the cost of health care will act as a rippling boon to the economy in a way that government stimulus never could.

Constant change and adaptation

Readers will notice all of these suggestions have more to do with regulation than direct decreases in spending. Yes, we strongly urge the federal government to decentralize in observance of the new technological world we are living in, nurturing discernment, empowerment and lower overhead.

Productivity, emergence and solutions are local because change is local. We do NOT live in a stagnant Marxian world. The modern corporation is threatened by the entrepreneurial activity enabled by technology and is in the midst of a gargantuan restructuring for survival. So should the federal government.

Yes, the Department of Education must go. Yes, the Department of Energy must go. And on and on. But we suggest the population is so institutionalized that such maneuvers will be viewed with alarm by the populace including the Tea Parties. After the above regulations are cleared away, and the economy gets on its feet along with some confidence, more long lasting structural changes can be instituted.

The only other first move should be repealing the 17th Amendment. Neither political party can be trusted to safe guard the Constitution and the encroaching, strangling power of the federal bureaucracy. Voters need the states on their side to prevent such bureaucracy in future Congresses.

Rome wasn't built in a day. Neither will dismantling the stranglehold the federal government has on the economy. An explosion of standards of living can occur in this country that will enrich the world. But first we need to get the government boot off our necks.

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