20090215 Stimulating Talk

The outlook for the American economy has just gotten worse. I struggled with an opening line this week and then decided just to blurt it out. Congress has passed something they refer to as an economic stimulus bill which provides next to no stimulus. It does provide a lot of spending but very little of it will stimulate the economy. It will have the effect of tying up nearly a trillion dollars worth of capital so that the private sector will not have it available to grow the economy.

In all of recorded history, the number of times that a government spending program helped stimulate the economy is precisely zero. “But Jim, what about the ‘New Deal’; Didn’t that end the Great Depression?” Examination of history tells a different story. Every time the government poured money in to fight the depression, the nation’s wealth dropped, stocks faltered and unemployment increased. In hind sight, the efforts to end the Great Depression actually prolonged it. Only when twelve million men were pulled out of the workforce to fight World War Two was the economy crippled by government interference able to support those remaining.

I could go into a long diatribe about what Congress’ real agenda is in this stimulus package but let’s focus today on something a little more positive. I am going to share with you, my dear readers, what a government stimulus package that would work would look like. It has three components.

First, if the government wants to keep unemployment from growing and keep industry investing, it should allow companies to take an immediate 100% tax deduction on all equipment purchased in 2009 without having to depreciate the equipment for seven, ten or fifteen years. Get the companies retooling for the future now knowing that it is more cost effective to do it now rather than waiting for a recovery.

Second, if the goal is to stabilize falling home values which has caused so many to own more for their house than it is worth, tell anyone who buys a foreclosed property in 2009 and holds that property for a minimum of five years that they will not have to pay capital gains tax. Give people an incentive to get these houses off of the market today. Home prices can bottom out now and begin going back up modestly. Money can be spent renovating the properties and flow more money into the economy.

Lastly, if the government feels a need to spend money and they are serious about ending our dependence on oil and saving the auto industry, they should begin a program of retrofitting all civilian government fleet of car, trucks and buses at all levels, local, state and federal over to natural gas which retails at 99 cents a gallon. It’s a cheaper fuel, that is produced locally gives better mileage than gasoline and greatly reduces emissions. Once the government creates the marketplace, a distribution network for fuel grade natural gas will spring up on the foundation of the current gasoline network. The auto industry can then manufacture smoother running, better mileage cars for the general public.

Rather than soak up capital which it can then be distributed in an inefficient manner by people with no idea how, the government needs to give free enterprise the elbow room to go out and do the job. Please point out to me one thing that the government does efficiently and effectively. Don’t say “Take our money.” Have you seen the tax forms? The government takes our money in the most inefficient way.

I know that you all think I must be brilliant to come up with these ideas, but I have to tell you these ideas are actually based on what has worked every time a government has successfully tackled severe economic problems.