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Root Causes 4 February, 2009

Posted by David Anderson in Economic Policy.
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Trillions for symptoms, but not one dime for root causes. Back in the early 1800’s there was a saying “millions for defense but not one cent for tribute”. It spoke of America’s determination to stand strong in the face of terror and extortion. Unfortunately today, we are seeing that we would rather throw money at the economic problems we are facing than address the root causes of these problems. Some of the solutions do not even cost money to implement.  It was a fool hardy approach taken by the Bush administration and it seems like the Obama administration is willing to continue it. I guess it is more of the same instead of the change we need.

There are many myths about the economy including that the last stimulus bill and its payments didn’t work. They did. They worked in 2002 and they worked in 2008. They helped delay the downturn by several months and should be part of a new package. The problem is that unlike 2002 this downturn was more than cyclical. It had some stubborn root causes which went unaddressed.

This writer called for us to address the housing crisis back in February 2008. It is still not done. We don’t need to buy toxic assets. We need to give the banks compensation for modifying mortgages and entice them to mass modify ARM’s and troubled mortgages of people who are not literally on the block. Economists estimate that federally guaranteed 4% mortgages done this way would cost us 300 billion dollars. Yet it would save the average family several hundreds of dollars a month for as long as they keep that mortgage. That would do more than any one time check. Let’s do it. We could use the second half of the TARP or use it in the stimulus bill.

We should also extend the temporary credit to first time homebuyers. It would cost 20 billion but as an interest free loan paid back over 15 years it would really cost us nothing but the interest we pay.

We should give aid to the states so they don’t raise taxes and layoff workers which would worsen the economy. I would say pick up 95% of Medicaid for two years and give block grants for “shovel ready projects”. We should also pick up unemployment, federally mandated student testing, at 100% for two years federally.

Naturally, we should keep the unemployed and underemployed from financial meltdown.  We should extend unemployment and raise benefits to make up for inflation (benefit levels actually went down since the last recession).  We should expand food stamps.  We should invite the newly unemployed into Medicaid.  This is proven stimulus to the economy.

Energy policy should be in the stimulus because it will help create a long term recovery. It is also a national emergency.

Cut the corporate tax rate and give accelerated depreciation to small and medium size businesses for two years. Give a $1000 a person rebate this summer and cut the payroll tax for two years in half so businesses are rewarded for each person they keep and people have more money every week.  Of course a better course would be the FAIR Tax, but that is not happening with this Congress.

Taken together these steps would save and create millions of jobs without socializing and regulating the economy beyond recognition. Tell me, would that type of policy work better than putting down new sod, giving out contraceptives, and funding starving artists?

Oh, yeah I forgot that if we don’t act today, we will lose 500 million jobs.

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