The Heritage Foundation - Leadership for America

September 26, 2008 Darvin Dowdy, Houston, TX writes:

How are we going to get out of this mess, JD? The American Worker is going to bail us out “if” they have “high paying jobs”. They’ll work hard, save, invest & pay higher taxes (because they’re making more). They’ll buy bass boats, shotguns and diamond rings for their wives. The higher pay from these jobs will “trickle down” (where’ve we heard that term before?) and this bailout will seem like a bump in the road.
But first we need to secure these higher paying jobs. Thats where the HF can take the point in this issue.

First and foremost, $500-700 billion annually folding back into our nations economy from domestic oil production. Millions of high paying jobs there. Second, nuclear power plant construction will add millions of jobs. And last, I want HF to “reconsider” its negative stance on the Corn Ethanol program. No matter what HF thinks of the program itself, the U.S. desperately needs these higher grain prices caused by it. This is a shot in the arm for Agri-Biz and will add what? You guessed it - JOBS!

One other footnote. These potential jobs must go to U.S. citizens for the most part. People who will invest back into our own nation. Not to say we won’t need foreign workers. We do. Who’s going to do the burger flippin’/mall retail jobs? But immigration must be tightly controlled and the border must be sealed.

I’d really like to see HF take the point on this issue. The solution rather than constantly analyzing what went wrong. We need optimism right now. Darvin Dowdy

September 26, 2008 Gregg Olsen, Eagle, ID writes:

Dear JD,

Somehow I expect more from the think tank at Heritage.

But as long as we are keeping it simple and talking about plumbing (no I’m not going there)here is my take.

They say it is a crisis of liquidity. Picture if you will a bathtub filled with liquidity. Loans flow from this bathtub of liquidity to the credit markets. The bathtub is running low on liquidity and the flow is clogged with illiquid assets.
So to fix the problem we need to clean out the illiquid assets (questionable loans) and refill the bathtub (our national capital base, financial institutions, etc.) with more liquidity (capital, money, cash). How do we do this?
The first question is if the government takes its liquid assets and trades them for the illiquid assets, have we not simply taken liquidity from one side of the bathtub and poured it into the other end of the bathtub? Is not the net effect of what we have done simply been the removal of the illiquid assets from the bathtub? It does not appear we will increase the liquidity.
What can we do to remove the illiquid assets from the bathtub?
1) Modify or temporarily suspend the Mark to Market Rule. http://www.cdobs.com/archive/our-columns/heres-a-plan-to-avoid-a-new-rtc%2C1720/
2) Due a Resolution Trust type arrangement.
3) Let the market work it out.
4) Spur the economy and grow our way out of it.
5) Sell it to the American taxpayer as proposed in the $700 billion bailout.
What can we do to fill the bathtub with liquidity?
1) Remove or lower the capital gains tax rate which will draw private investor investment into the bathtub.
2) Lower the corporate tax rate which will spur economic growth increasing our wealth helping to fill the bathtub.
3) Plug the leaks – we have a gapping hole leaking $700 billion (per T. Boone Pickens) per year for foreign oil.
4) We have already ascertained that taking liquidity from one side of the bathtub and pouring it into the other side does not increase our liquidity unless the federal government does it with the printing press. If the federal government increases our money supply it will help to fill the bathtub. However this would cause inflation by devaluing our dollar. This would be akin to inflating our way out of the problem. It would increase the housing prices. It would be devastating to the elderly and those living on a fixed income. Not the best choice.
The normal market solution to lack of liquidity is; the nation goes into a recession, our currency goes down, our nations goods and services look like a bargain to the rest of the world and they come shopping with their liquidity. This replenishes our liquidity and our economy recovers and takes off growing again. This is in fact happening now the world is on a shopping spree buying up our country. All things being equal we would have a year or two recession and then be on our way again. We unfortunately have an abnormal leak in our bathtub. Until we plug the $700 billion foreign oil leak our liquidity crisis will continue.
It seems the currently proposed $700 billion bailout will remove the illiquid clog but nothing more. I guess the idea is that this will allow the economy to grow our way out of this problem. I’m afraid I do not see it, in my opinion this problem will keep popping up like it has for the last 2 ½ years.

September 30, 2008 Ben Schleimer, SF CA writes:

I hate the idea of dropping the capital gains tax and corporate tax but I think that it is the better ideas I’ve read to reduce the impact of our credit gluttony.

I feel like relaxing the Mark to Market rule would just spur another bubble if its not very carefully watched.

I don’t think that the US has any choice but to go through a painful period of stagflation until american goods are cheap/good enough for the rest of the world.

September 30, 2008 jeff, buffalo ny writes:

i have always maintained the best way to grow our economy is to reduce the burden of taxation. if our economy were a runner and taxation were represented by weights strung around the runners neck, would you add or subtract weights to improve the runner’s speed? Of course, you would remove them. Pass the bill, implement meaningful changes in our tax code reducing the effective tax burden Amricans and American Companies pay to the IRS, and over time we’ll work our way out of this problem. We can repay this bailout through economic growth. Simply passing the bill without any substantial changes to our system of taxation just delays the inevitable.