And what we need NOW are more tax cuts and make
permanent the Bush tax cuts. Best bet would be to
implement the Flat-Tax.
And the elemination of at least 1,000,000 Fed gov't
jobs too.
"Do You Austrians Have a Better Idea?"
by Robert P. Murphy
Posted on 2/2/2009
A lot of people get annoyed with Austrian economists because they tend to be so dogmatic (we prefer the term consistent) and because they cloak their strictly economic claims with self-righteousness (we prefer the term morality). After a good Austrian bashing of the latest call to steal taxpayer money and waste it on something that will make a given problem worse, the stumped critics will often shout, "Oh yeah? Well do you guys have a better idea?"
Now, in truth, someone doesn't have to have a better suggestion in order to point out that a recommended strategy will exacerbate the situation. If an allergic man has been stung by a bee, I don't know what to do except rush him to the hospital and maybe scour the cupboards looking for Benadryl. But I'm pretty sure drawing blood from his leg, in order to inject it into his arm and thus "stimulate his immune system," is a bad idea on numerous accounts not least of which, is that I'm pretty sure an allergic reaction means your immune system needs to calm down. But the point is, if a bunch of guys hold the man down he has to be forced to endure the procedure for his own good, don't you know I feel perfectly qualified in yelling, "Stop!"
If you grasped that analogy, you can understand my feelings about anything Paul Krugman writes.
(All joking aside, I am pretty proud of the above analogy. But to make it even more accurate, let's stipulate that a blind heroin addict, who has been convicted of manslaughter on three separate occasions, is the one entrusted with making the transfusion. Naturally he will use one of his own needles for the procedure.)
An Austrian Recommendation for President Obama
In one sense, the critics are right when they ask, "Oh, so we should just sit back and do nothing and let the market fix itself?" Yes, that would be a perfectly good idea. The whole reason we are in a recession in the first place is that the capital structure of the economy had become unsustainable due to the Fed's massive credit expansion following the dot-com bust and 9/11 attacks. Resources most notably, labor are currently idle, because the economy needs to readjust. Overextended lines such as housing and finance need to shrink, while others need to expand. (And no, I don't know what those understaffed lines are; that's why we have a price system.) Because Americans lived beyond their means for so many years, they now need to live below their means, consuming less while they rebuild their checking accounts and portfolios.
Given the diagnosis, we can be sure that efforts to borrow and spend our way back into prosperity, or massive bailouts of the banks and homeowners, are only pumping air into a flat tire with a gaping hole. And Bernanke's unbelievable injections of new funny money into the credit markets will only ensure that those failed institutions remain afloat, paralyzing true recovery in the loan market, and risking very large price inflation if Bernanke does not soon reverse course.
However, even though "nothing" would be much, much better than all of the alleged remedies being bandied about, the Austrians actually do have concrete proposals for President Obama. The following list includes items that I would have endorsed even before the crisis, but inasmuch as they would definitely help things, I offer them with sincerity to the new administration.
One last caveat: I know there are many purists who read the Mises Daily, and will be aghast at my watered-down recommendations. Yes, yes, I agree that the best thing would be for Obama, Pelosi, Reid, and all my friends to say, "You know, if you look at the history of this company, it always ends up wasting money and getting innocent people killed. I think we should just quit and go volunteer at a church instead."
But, if I said that as an Austrian recommendation, it would be dismissed as "unserious," a very grave charge indeed. Thus, the following list of recommendations are not politically impossible, just exceedingly unlikely:
- Eliminate the personal and corporate income tax. Don't put in a flat tax or a fair tax or a VAT or any other cute name for a very uncute process. To make sure that individuals and corporations realize you are serious, blow up the IRS building. (Have everyone vacate the premises first, of course.) Tell all of the displaced workers that they have 9 months of full pay, plus whatever pension and health-care benefits they had contractually earned to that point. If the workers get new jobs 3 days after being laid off from the IRS, that's fine; they still get their full 9 months' pay. But if they haven't found a new job after 9 months, tough.
- Unfortunately, dismantling the Social Security system will have to
wait. (That means some of the IRS personnel would sigh have to be
retained. But they would move to a different building.) Getting rid of
the income tax will knock out much of the federal revenues, and taking
out all payroll "contributions" would take us into the realm of
"unserious." Note that in 2007, even without the personal and
corporate income tax, the federal government still took in more than $1
trillion in
receipts.
- The loss of some $1.5 trillion in annual tax receipts sounds absurd, but the actual figure would be lower, because of "supply-side" effects. That is, the true stimulus to the economy from such an enormous tax cut would cause the revenues from other sources to grow. So long as the federal budget were cut by, say, a trillion dollars, within a few years it would be in the black.
- Reducing annual federal expenditures by $1 trillion sounds
inconceivable, but it actually could be phased in. The government has
many assets that it could auction off into private hands, so that in the
first year or two, the government could take certain programs and say,
"This will have its budget cut by one-third over each of the next
three years." The auction receipts would fill the gap until these
phased-in reductions had fully occurred. Some of the obvious auction
items would be the oil in the Strategic Petroleum Reserve (current value
of about $35 billion at $50/bbl oil), as well as all of the mineral
deposits (both onshore and offshore) technically owned by the federal
government. It is difficult to come up with an estimate of how much the
latter properties would fetch in an auction, since the proposals right
now are for leasing extraction rights. But since the Outer Continental
Shelf is estimated to have some 86 billion barrels of oil, presumably the
government could receive many hundreds of billions of dollars and
possibly trillions from an orderly and staggered sale over a few years
of the most lucrative (and environmentally noncontroversial) lands. Now,
where to start cutting?
- Eliminate the DEA and the SEC. Since the SEC failed to catch Madoff, despite nine years of warnings, I think its $950 million annual budget is obviously a waste of money. The DEA's $1.9 billion budget in 2007 also strikes me as counterproductive. Beyond the issues of violent gangs and judicial corruption, there is the fact that this is a recession and we need to cut costs. If you're afraid of your kid doing drugs, have a serious talk and then make him watch this movie. And if he's still keen on the idea, I'm not sure the DEA is going to stop him. (By the way, the DEA and SEC employees get the same deal as the laid-off IRS personnel.)
- Cut the Pentagon budget in half. In FY 2008 it was (officially) some
$460
billion,
so that cut alone would free up $230 billion per year. This isn't an article about foreign policy, so we won't be specific about how the military could achieve such cuts. But if you're worried that the country would suddenly be overrun by Iranian tanks, the following chart should reassure you:
_________________________
Robert Murphy, an adjunct scholar of the Mises Institute and a faculty member of the Mises University, runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to Man, Economy, and State with Power and Market, and the Human Action Study Guide.
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