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Economic Stimulus Concerns

by Ron Paul

This past week in Washington there has been much talk about the economy. It seems by their actions the leadership and the Fed is finally willing to admit we have a problem, and we need to do something about the economic mess we are in. This is a good thing. However, they are still not being honest about the root cause of our impending crisis and want to deal only with symptoms, not the disease.

There are some positive aspects of the highly lauded economic stimulus package that has been negotiated. I am in favor of taxpayers getting some of their money back, however temporary tax cuts and one-time rebates will not “fix” the economy. What we desperately need right now is real deep significant tax cuts that are enabled by big spending cuts and reduction of government waste that is so rampant. Unfortunately, too many in Washington still believe we can spend our way into prosperity, which does not work and never has.

Countries build wealth through robust economic environments, in which jobs are created and businesses can operate at a profit and grow. When taxes bleed away profits and burdensome regulation hamstrings operations, our businesses and our jobs go overseas. The United States must foster a competitive business environment once again.

There are a few ideas out there for economic stimulus that I do support, such as making permanent President Bush’s tax cuts. I have also signed on as one of 49 original cosponsors of the Economic Growth Act of 2008 which will provide actual economic stimulus through private sector tax relief and job-creating business incentives. This plan features

· Full immediate expensing for major business asset investments

· Reducing the top corporate tax rate from 35% to 25% to be aligned with average rates in Europe

· Indexing the capital gains tax for inflation

· Cutting and simplifying the corporate capital gains rate

Enactment of these dramatic tax cuts will free up money so employers can start hiring again. I would like for the unemployed to have the satisfaction of having a job again so the standard of living of the American family will go up. And even more than a one-time miniscule rebate check, I want you to keep more of your own money in the first place.

Sending out checks and cutting interest rates yet again is merely a shot in the arm when in actuality, the economy needs major surgery. I look forward to working with my colleagues in Congress to provide major tax relief to the American people.

Dr. Ron Paul is a Republican congressman from Texas.

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Comments

Congressman,

You say "Unfortunately, too many in Washington still believe we can spend our way into prosperity, which does not work and never has."

Surely the foundation for prosperity in America today was laid by FDR's New Deal, when after a prolonged period of anarchy in largely unregulated financial markets (sound familiar), there was an almighty crash and the economy had to be rebuilt almost from scratch.

The United States did spend its way to prosperity in the most spectacularly effective fashion.

If the economy were to suffer a full blown recession this year as seems increasingly likely, at least that option remains open.

Hey Mark -- it appears you might not have been exposed to Ron Paul, his campaign, his philosophy, his speeches, his beliefs, his appearances, his writings, his influences, or anything closely related. That's not meant to be critical -- but your mis-impressions of Ron Paul's understanding of the mythical laissez-faire of the 1920s is easy enough to fix:

http://www.mises.org/store/product1.aspx?Product_ID=63

(Hint -- when was the Federal Reserve created, and why...)

# posted at by Bo Zimmerman

The New Deal!??!?!

Please tell me this is a joke.

Unregulated financial markets? Maybe the roaring 20's had something to do with the economic stimulus that was the 1913 Federal Reserve Act and the ensuing torrent of "gold-backed" notes. And likewise, maybe the depression had something to do with it when they stopped making "new money". A side effect of the depression was the failure of most small, state banks, which were not forced to be part of the Federal Reserve. Oh, and FDR'S OUTLAWING OF PRIVATELY OWNING GOLD, WHICH SUPPOSEDLY BACKED THE FED'S NOTES.

FDR's monetary system was only fully realized when we abandoned Bretton Woods in 1971 and switched to completely fiat currrency.

Which has cemented the mess we're in today. Have you ever taken a look at M3 or the dollar's historical value?

At all levels, the government spends close to 50% of GDP. So we want MORE government spending?

Economy is defined by utility/cost. You can argue supply side or demand side all you want. A healthy economy needs both. Healthy capitalism needs sound money. And ask any Russian-born immigrant if he prefers what his labor buys him from free enterprise here or what the Russian government gave him in return for cooperation with his slavery. I'll take capitalism over socialism and fascism, please.

Maybe we should start some more wars because WWII "got us out the depression". Or we could borrow lots of money because that seems to be prosperous...

Not to mention social security is a pyramid scheme.

# posted at by Robert

Let us listen into Mark Braund's mind as he reads the comment placed by Robert, to see what he actually gets out of it.

"ZOMG U R A N00B!!! U R TEH STOOPID! I NO THIS B/C I AM FLAMING MYOPIC LBIERTARAIN CONSPIRACY THEOPRIST MAN, AND EVERY1 ELSE IS STUPID EXCEPT ME!!!!11!!11!1one!1!!"

Ooh! Robert went down in flames! Perhaps a different tone might have been more effective? ;)

As to the red hot economy of the 20s that lead into the Great Depression of the 30s, you could say it was caused by excessive econonmic freedom, but only in the sense that the Fed's *very* loose money policy during the 20s enabled people to make far more bad investments that they had previously been able to. The practice of "trading on the margin" (wherein banks loaned money to people for the purpose of investing in stocks... very similar to the recent phenomenon of banks lending to people for the purpose of investing in homes/land, leading to bubbles in both markets) is an example of something that couldn't happen under the previous system, where such excessive lending was known to lead to bank failures.

All bubbles eventually burst, and when they do, people that previously believed they were riding high stop spending. The businesses that relied on them stop spending. The businesses that relied on the businesses that relied... you get the picture. With a large enough bubble, the entire economy becomes one massive malinvestment, and the process of liquidating those bad investments and shifting the resources over is an extremely painful process.

Of course, when the slowdown in economic activitiy combined with the continuing growth in the money supply lead to rising prices, the Fed overreacted and clamped down on the issuance of new money, at precisely the time when, if ever the economy needed an outside actor to keep interest rates from spiraling out of control and provide temporary extra liquidity to banks to prevent the collapse of the entire banking system, it was then. Thus, the Fed did exactly the wrong thing at both points on the timeline.

I hope I've been clear in my description, though I doubt i have been. Feel free to pick it apart.

Oh, and Robert? No hard feelings, eh? :)

# posted at by Tarvok [TypeKey Profile Page]

Bo states the following:"Surely the foundation for prosperity in America today was laid by FDR's New Deal, when after a prolonged period of anarchy in largely unregulated financial markets (sound familiar), there was an almighty crash and the economy had to be rebuilt almost from scratch."

Excuse me? The late Jude Wanniski has pretty clearly shown that the Crash was caused by anticipation of the Smoot-Hawley Tarrif bill winding it's way through Congress. When it became obvious that it would pass and President Hoover would be stupid enough to sign it, they panicked.

Further, the "anarchy" and "unregulated" markets he mentions were not the cause of the Depression. Rather it was due to another Stupid act by President Hoover. He raised taxes when he should have been lowering them, in order to stimulate the economy.

And too, FDR did NOT bring the end of the problem: he only made it worse. In fact, the US went through TWO depressions, not one, and the second one was all to the credit of FDR. Keynesian economics never worked,and never will either. You simply cannot spend your way out of trouble.

I suggest you try reading Amity Shlaes' "The Forgotten Man". It is just the latest indictments of FDR and his failed policies, which are finally coming forth to shed REAL light on to the terrible economic condition FDR placed the American economy. FDR not only did not understand economics, but he didn't really care to learn anything about it.

# posted at by John L

Sorry, I meant Mark, not Bo. Sorry Bo.

# posted at by John L

Keynes seems to be unworkable given a history of deficit spending coexisting with a business cycle - however Keynesian theory did not figure in a large institutional debt and the impact of the payment of net interest on the financial markets. Certain regimes raise more revenue from those more likely to save (Democrats) by either raising or in the case of JFK lowering marginal tax rates. Others simply lower tax rates and run a deficit. Interestingly, the numbers I have crunched from the end of the war until the present day show that Republican regimes by and large have to run deficits to get economic growth (because they cut taxes on the savings sector) while Democrats raise taxes, cut the deficit and run about a 3% growth economy. This occurs because they reduce the debt, making more money available in the financial markets, but no so much that it leads to speculation. In the recent regime, cutting taxes while borrowing money from China makes our grandchildren poorer while at the same time leaving excess savings available for speculation - leaving the economy ripe for a bubble.

Will the stimulus package help? It might boost consumer confidence, although most consumers will likely pay off credit card debt.

In the current economy, many will go to Wal-Mart and buy Chinese goods, thus balancing the fact that we are borrowing money from the Chinese to fund the stimulus package. The reason we borrow money from the Chinese is because they are funding our debt at a lower rate than is attractive to U.S. investors. This can only last so long, however.

In the long term, increasing taxes on the wealthy, which also happened in WWII, will take money out of the savings sector and reduce the debt - thereby reducing net interest on the debt and increasing the money available to lend in the private sector. Something like this is essential, since there is nothing Libertarian about establishing a bond-holder class whose heirs or nationals feed at the public trough for generations. That smacks of aristocracy and I will have none of it.