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The Next Right Policy: Reviving the Economy Through Free Market Principles
Submitted by Aaron Marks on Tue, 12/23/2008 - 04:42
in
Two days ago, Jon Henke posed the question, "What policy should Republicans be advocating and pursuing to limit government and regain popular support?"
With Barack Obama and the Democratic Congress proposing new bailouts and a significant amount of additional government spending to create jobs and restore the economy, Republicans have a phenomenal chance to reinforce our earnest belief in limited government. I propose a simple policy that will allow us to both "limit government and regain popular support": Republicans must fight Democratic efforts to build a nanny state to solve the economic woes. Instead, our policy should be offering solutions to revive the economy that are rooted in free market principles.
Indeed, Thomas Sowell points out that government intervention may actually be harmful to the economy:
Even in the case of the Great Depression of the 1930s, increasing numbers of economists and historians who have looked back at that era have concluded that, on net balance, government intervention prolonged the Great Depression.
I recently had a unique chance to discuss the economy with renowned economist and monetary policy expert Dr. Allan Meltzer (which you can read at length here). Meltzer and other leading economists have observed that the big problem plaguing the economy is the housing crisis, and that the government's efforts to breathe life into the economy have neglected this issue. Meltzer proposes a free market solution to the housing crisis that could be immensely effective as a step toward getting the economy back on track:
To address the housing problem, Congress and the administration should take actions that increase the current demand for housing. For a limited time, say up to the end of 2009, allow buyers to use the value of their down-payment (or some part of it) as a tax deduction. Or, reduce the tax rate for qualified buyers who purchase a house between now and January 2010. Or do both. Give the benefit to all home buyers, including those buying a second or third house.
The bottom line is that the battle of free markets versus government control is one Republicans can – and should – win. Dr. Meltzer noted that he often says, "Capitalism without failure is like religion without sin." Yes, the free market will inevitably fail on occasion – and Republicans, as champions of capitalism, must pursue a policy that ensures that the free market is given the chance to fix itself as it has many times before. If Republicans can identify innovative free market solutions to the economic woes like the proposals outlined by Dr. Meltzer, we can help ensure limited government while making real progress toward economic recovery.
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Comments
obakasama! keep trying!
everyone who wanted a house bought one "before they become unaffordable"
same problem the car companies are having with their six year loans.
I'm sorry, but when you've got some workable ideas, can you get back to me?
These are patently idiotic.
Now what real economists think
The majority of actual economists (as opposed to conservative think tank staffers with little professional training in technical economics) think the New Deal was a help to the economy. Indeed, Krugman points out that the economy grew at 9%/year between 1934 and 1937. We also know what "hooverism" did for the depression. That's the strategy used from 1929 to early 1933. That's when a stock market crash, unattended, turned into a massive depression.
In 1937, Roosevelt cut back new deal programs and raised taxes to balance the budget, which caused a depresson relapse.
I've read Sowell and Krugman. One has a Nobel Prize for technical contributions to the subject of economics. The other maybe has a BA in something and is supported by rich conservativce patrons. Krugman quotes statistics.
Not only that...
Igm is absolutely correct here in pointing out that all credentialed economists agree, overwhelmingly, that New Deal economics largely moved us out of the depression, and that the 37 rollback was disastrous. You're just wrong to state otherwise.
Not only that, but your housing proposal is likely to be ineffective in the current economic. You advocate a tax credit on housing down payments, which in different economic times might make some sense, but given that we have the lowest savings rate on record, the credit simply won't uptake with the vast majority of people. Indeed, one of the reasons we're in this trouble is because the under-regulated mortgage environment allowed for people to obtain loans with no down payments whatsoever in many cases, or very small down payments in most others. Coupled with the fact that consumers simply don't have money and can't get credit, the idea is simply a non-starter. People aren't going to be buying homes without money for a down payment, so the tax credit will be too limited being provided to very few people.
Additionally, there's danger that this could cause a reinflation of the housing bubble, which we don't need. We already have more houses than people. It's time to weight expenditure of government money (in cash payouts or tax credits) to repair our existing infrastructure before new home construction.
Um, what exactly is "free
Um, what exactly is "free market" about a TAX CREDIT? How abut this as a free market policy: Abolish the Income Tax.
Conservatives used to know what free market actually meant.
I agree
As long as individuals are taxed on their labor, we are nothing but slaves.
We, as Republicans, should insist Congress either enact a law specifically taxing individual labor or stop collecting it.
ex animo
davidfarrar
What should we tax?
Hey davidfarrar, what taxes should we have? Hint: no taxes is not one of the choices if you want to live in a country with a government.
As Mayor Rothchild once said: "Give me control over a...
"...nation's money supply, and I care not who makes its laws."
Since this nation's birth until 1913 this nation had no tax on a person's labor at all and yet this nation prospered. Indeed, some would say it was during this period the nation's economy grew the most, even while it was transforming itself from an agrarian economy to an industrial economy. But to answer your question directly, the state should only do what it has the legal authority to do and that is to tax profits.
If I pay a man to paint my barn and I sell my barn at a profit, the state has a law that taxes my profit. But show me the law that says the state has a right to tax the labor of the man who simply painted my barn, whether I sell the barn or not for a profit. Labor is a simple conversion of capital, it is not profit, therefore; it is not income, says the Supreme Court.
To learn more.
ex animo
davidfarrar
Ideas from a different perspective
aka someone who has actual financial experience.
http://www.dailykos.com/story/2008/12/23/83011/984/840/676492
Changes before policy
As a Republican who realized the position we were in over a year ago, and I live in the Heartland of Oklahoma, I can tell you now that if we do not structure our position to better meet the needs of middle American we are going to wander in the wilderness for a very long time.
We cannot change policy at this point, we cannot be effective in any way, shape or form at this point in time.
Until we deal with the position WE are in, we cannot be effective and slamming Obama when there is nothing there, such as the bull with Blago, we will remain in the wilderness. That action was total idiocy and hurt us even more.
Like it or not we have to make people like us again. Policy? Whatever. We must make people like our brand again and if we only stick to making policy? They will never come back. We must become likable or we become a party of crazy right wing religious fanatics only.
Someone said, in an earlier post, that we had the moderates. BULL. IF we had them we would have won this election. We did not and Obama won with a majority of moderates. Face the facts or we are doomed to repete the same mistakes...ie: the Blago mess.
GOP has a credibility problem
I agree with BulldogsRule's comments.
Don't make the mistake of thinking this is '92 when Clinton took office. At that time, we were coming off the glow of Reagan and the GOP was poised to take the House. Now we're suffering from the tarnish of Bush II and have taken a beating in 2 straight elections.
As Bulldog suggests, trotting out unserious attacks and quick-fix policy ideas that have not been thought through will not improve our standing with the electorate. Republicans and conservatives need to muscle up some sensible, incremental solutions to the real problems Americans are facing and we've got to show our work. Shouting "Free Market Principles!" or "Make Government Smaller!" everytime a problem occurs is not going to do it. We've got to get down in the weeds and come up with specific and detailed proposals.
Not -
Basic bubble economics 101: The healing only can begin when the bubble-inflated prices return to the level that's in equilibrium with the real economy, ie, that can be justified by actual income levels. Are we there yet? No, not yet, but gettin' there. The temporary tax credit only delays that, and so prolongs the agony. It's like a hard core alcoholic taking a drink the morning after so he doesn't feel so rotten.
Huh?
http://www.thenextright.com/max-borders/the-real-free-market-and-mixed-messages
Much better.
Much better.
Thank Bernie Madoff
For proving the point.
The absence of regulation that allowed him to fleece rich fools for billions has released back into the economy money that was tied up and doing nothing. Madoff showed that a bunch of fools and their money were lucky to get together in the first place.
Economic Darwinism works fine, and there should be no criminal penalties for taking huge bucks from rich idiots who deserve to be cleaned out. I want to see a lot more enormous swindles and a lot more (formerly) mega-rich finding out what it's like to be me.
umm... yeah. you liked the Madoff Rule?
where only he was allowed to short the market?
*snort* someone trusted him a lot more than they trusted everyone else. and that was the guvmint. currently being sold down the river by banks that King Henry trusted above all else -- he used to run one, you know!
You think that money came BACK????????????? What part of deleveraging don't you understand/???
Nicely Put
I totally agree with you Aaron. The economy, left to it's own, will naturally correct itself. That means there will be ups and downs. It's when we try and prevent the downs, that it accumulates until it crashes on itself. Putting it in a message that can get across to the average citizen is the challenge.
Sure Krugman won a Nobel Prize, but so did Yasser Arafat. Maybe it was awarded to Krugman for stating how efficient the US runs Social Security. Not exactly the most sound statement ever made.
I know people like to put down conservative thinkers as bumbling idiots. So, just in case it was difficult to look up the education of Mr. Sowell here it is in brief (via Wikapedia):
Define 'correcting itself'
Are you arguing for a laissez-faire type fiscal policy?
Additionally, would you rather have a laissez-faire policy that corrected itself but might not increase our economy, or a policy with government oversight that might increase the economy? (Not saying those are 'realistic' options, just wondering which choice you feel is the better one.)
Err on the side of
laissez-faire! Government intervention & government spending are not going to increase the economy. If the government remains in a role of oversight where the playing field is kept level (as possible) & opportunity is equal (as possible) , that would be good. If the government tries to spend the economy up or manage businesses, it would not be good - it would fail.
A view from the center-left
I like this blog a lot, not because I agree with everything that the authors have to say, but rather they seem interested in ideas, not demagoguery, and we need more of that.
My perspective regarding free markets is that of being careful not to let the fox guard the hen house. At the moment, it is very hard for me to swallow suggestions regarding straight free market solutions because of the damage we have seen in the financial industry where we will end up paying for it in spades as taxpayers because that industry was deregulated to the point where it seemed to invite abuse. There must be a happy medium between unregulated and overregulated. I wish that people would focus on the happy medium, rather than sticking to ideologies on both ends of the spectrum that have major downsides.
The other thing I would add is that discussion of whether the economy will eventually get better as a strict abstraction is convenient in that it does not need to address how badly many people suffer along the way. While the Democrats have one set of flaws, this is, to my thinking, a major flaw in the approach that the GOP takes. Words ring hollow when people lack money, shelter, food, etc. They may actually do worse than ring hollow--it would not surprise me if a lot of people resented them because people, themselves, are not abstractions.
I'd like to see the GOP offer up plans that I would vote for, but if it cannot reflect upon how well deregulation has worked out at this point in time and refine its platform, it is going to be hard to get my vote. When adherence to an economic theory trumps the well-being of my fellow citizens, that bothers me.
Who Caused the Deregulation?
There must be a "happy median," one where abuse is not allowed but business is not stifled.
In the financial fiasco, we see BOTH extremes of over-regulation & under-regulation, which worked together to really cause a huge mess. Over-regulation was foisted by the Democrats who coerced banks into making a certain percentage of loans to those who would be unlikely to pay them back. Under-regulation was foisted by Democrats who fought tooth & nail against oversight for Fannie & Freddie. Because of this under-regulation, Raines & co. were able to loot the companies for millions & bundle these bad loans into instruments to sell to other banks.
There is a commonality with this - Democrats (the center-left party) were behind both the over & under regulation.
I agree to some extent, but...
I think that the GOP needs to be able to answer the question, "Why should we trust you with the economy and regulation if you held the Executive and Legislative branches for six years and were unable to undo deregulation that led to the economic meltdown?" I suspect that is going to be a much bigger political hot potato. I cite the 2008 election as evidence.
There is plenty of blame to go around on deregulation. It strikes me as foolhardy to pretend otherwise or to present the case that one side is at fault. I also think it distracts from trying to find solutions.
Everybody ought to be looking at their core tenets regarding economics to see if, when theory meets practice, their theories hold up. If not, perhaps their theories could be refined and improved, rather than applied as if gospel.
Brainstorming
Ideas are equal when brainstorming. The Republicans simply need to get back to fiscal responsibility & limited government conservatism.
The idea for tax reductions for home downpayments is not a bad one - until we get the tax code simplified. The role of government economic policy should be to facilitate good stuff like expansion.
"Internal" Free Markets are wonderful...
...within the confines of our own sovereign borders. Yes, full laissez-faire, let-r-rip capitalism. Tried and proven- internally that is. We have laws against theft, fraud, embezzlement, graft, corruption etc and we have our own law enforcement and the courts to enforce the laws. Where we have gone terribly awry is by attaching ourselves to international trading org's and agreements like the defacto org GATT and its evil offspring the WTO. And their ilk. Because of our own internal economic success we've arrogantly assumed that we could out maneuver all of these backwards, 3rd world nations. Now we have fallen into their trap and are cow-towing to their rules and it is we who have been out maneuvered. And our jobs and wealth being siphoned off. Hence our citizenry must resort to ponzi schemes to make money.
The problem with Mr. Marks and Dr. Meltzer [and the GOP Hierarchy/elected reps as a whole] is that they (we) over generalize to the extreme. Why? They're brilliant, ultra-educated folks. Yet they don't seem to want to think their way out of the box. My opinion is that they (we), as a whole, have become lazy and to a certain extent, cowardly. They don't want to do what it will take to confront/go on the offensive against these socialists and transnational progressives who have real momentum on their side in their efforts to inch us closer and closer to global governance. Nudging us out from under our own Constitution. Maybe we are all cowardly. Yellow up and down our backs. So we continue to over generalize, remain vague and nebulous because we're too timid to draw back and throw a solid punch. Darvin Dowdy
Regulation and Lowered Tarriffs
Obviously, we need way more regulation. Corporations are inherently against free markets; they need to be reigned in. So do unions, for that matter (i.e. eliminate the relevant sections of the Clayton Act), though for the moment they should be tolerated as a lesser evil.
However, we also need lowered tarriffs. There is no real economic argument for higher tarriffs, or for any tarriffs at all, for that matter. IIRC, even Krugman agrees with me on this. To make this semi-achievable, not to mention fair, the government needs to assist people who lose their jobs due to globalization transition into new jobs/sectors.
same old nonsense.
How many Republican Presidents does it take for things to change? Under every Republican President in the past many decades, the deficit has gone up, and the economy has gone down. It's like Republicans get a President elected with cries of limited government, and then try to take a Mulligan when the deficit goes up and the economy falters.
How many iterations of this do we need before we acknowledge that these ideas simply do not work? Do we need another economic crisis to gather more evidence that markets are not magically self-correcting and do not tend toward equilibrium? Economists have shown in a repeated experiment that in the simplest possible market, where everyone has all the information and all returns are guaranteed and known in advance, people will still create speculative bubbles.
What does "nanny state" mean for Republicans, anyway? Is there some sense that socialized medicine somehow impinges individual freedom more than forcing women to become mothers, or laws to ban flag-burning? Let's take insurance as one example: left to themselves, the most cost-effective thing for insurance companies is to (a) deny coverage to people with chronic conditions, and (b) take away coverage from anyone who suddenly needs it. Yet, as far as I can tell, Republicans oppose any attempt to force insurance companies to act in a humane way.
Is the "nanny state" some kind of nightmarish scenario where workers get paid a living wage and everyone has health care and enough to eat? I'm at the end of my understanding: why is that bad? Markets put profit before human well-being--it's what they're designed for. Why don't we just acknowledge that and provide non-market guarantees for basic human needs, and let markets do what they're good at, which is producing goods and making rich people richer?
We cannot change policy at
We cannot change policy at this point, we cannot be effective in any way, shape or form at this point in time. The DUI lawyer and republicans oppose any attempt to force insurance companies to act in a humane way. Los Angeles DUI Lawyer
I agree
No body can change the policy and rules of government.The idea behind home down payments is not bed. Now a days we have to pay tax for minor to major thing.
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I agree with you
I think these are the days when we have to pay tax for every thing.Either it is house tax or we puchase something from the market.So I think it is a good start.we must pay tax for these things because it is beneficial for economy as well as for ourselves.
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Agree with Meltzer
I happen to agree with a lot of Dr. Melzter's theories and criticisms of economic policy. The quote in your article is a classic line and very prophetic: "Capitalism without failure is like religion without sin" I hope the recent good news with the housing market (albeit in the lower starter house end) is a leading indicator of more good economic news. Of course, this is tempered by the recent announcement of the 9.7% unemployment rate.
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