KT,
IMO, the solution to America's economic woes are very simple. It's implementing some of them that would be very difficult.
Basically, we have to unwind the existing credit excesses, get Washington spending under control, and start saving a lot more as a country.
Washington couldn't possibly be any easier to fix "in theory".
All we have to do is pass a law that says that the growth rate of federal spending can't exceed the rate of inflation. Then all the political battles would be about allocating the pie instead of the size of the pie. We could raise spending faster than inflation in some areas and lower it in others depending on the priorities and the will of the people without ever being fiscally irresponsible. Since nominal GDP is the sum of inflation plus real economic growth, and tax revenue growth would approximate the growth of nominal GDP, tax revenues would grow faster than expenditures. So it would just be a matter of a few years before we'd be running surpluses again and savings would rise.
Of course that is easier said than done.
Democrats would rather raise taxes, grow the rate of government even faster than nominal GDP, and call it a spending cut if any republicans want to slow projected insane levels of government growth rate just a little.
And since we just had a republican president and congress that was just as bad as any democrat in history on spending growth (but borrowed us into oblivion instead), we are totally screwed.
The democrats are probably going to win. So IMO we are looking at expanding government, expanding government growth rates, expanding promises that can't be kept, higher taxes, more money printing when the promises eventually come due, slower economic growth etc... in the decades to come even if things get better for awhile.
On the credit bubble side, we are already working off many of the excesses. Banks are slowly diluting and recapitalizing. It's just a matter of time before they are sound again. No problemo.
The other problem is the monetary system. That's another area that is more or less hopeless. Most mainstream economists are operating with an incorrect intellectual model even if they have high powered IQs crunching the numbers. It also has no chance of being fixed because Wall St controls things and they aren't going to give up a system that maximizes bubbles (and their ability to transfer wealth) and socializes their risks unless someone that understands what's going on gets gets violent and starts killing people. Then they may reconsider.
|
