Politicians, financiers and pundits are all busily attempting to jawbone a normal cyclical downturn, already made tougher by the Fed’s seesaw monetary policy, into a permanent downturn in US and world economic growth. A failed $700 billion financial bailout is to be followed by a $50 billion bailout of the failed US auto industry that may buy it, at its current cash burn rates, a couple more years in business. Treasury meanwhile wants to gin up consumption by encouraging the thing that was the source of our current problems – consumer debt.
Forget all that. The long term solution for the auto industry, the financial industry, the housing market, consumer pocketbooks, the federal budget and other problems that have been pushed to the backburner, like Social Security and Medicare, is to reindustrialize America. That means new investment in not just the auto industry, but every industry. It means reducing regulatory hurdles. It means changing Barack Obama’s notion of 5 million “green jobs” from jobs in recycling and alternative energy to jobs in environmentally responsible manufacturing. It means taking advantage of the major shift that has occurred in the US economy in the last six months – from consumption to saving – to reinvigorate investment and production.
Of course, with Americans shifting for the first time in recent memory to net saving, the biggest obstacle to reinvigorating America’s industrial base is all this government action to “start consumers spending” when what would really be ideal would be to start those consumers investing. Remember that capital investment puts as much money into circulation, creates as many jobs, as throwing money away on knick knacks, it just puts that money into different industries. But what are some specific policy alternatives to the current round of bailouts and consumption turbochargers?
Capital gains taxes. John McCain floated the idea during the campaign of temporarily suspending the cap gains tax. This idea was fundamentally flawed for two major reasons. First, there are few gains to be taken right now. Second, it would encourage more selling of securities in the period of suspension. Third, it wouldn’t encourage long term investment at all. Still, a temporary change in capital gains taxes certainly could be a major part of re-industrializing America. Specifically, Congress should pass at the earliest opportunity a law making any investment in US companies, debt or equity, in the next four years permanently exempt from capital gains.
Taxation of dividends. The exemption from capital gains taxes for new investments made in the next four years should be applied to dividend and interest income from US investments as well. Joe Biden made the much maligned point that paying taxes is patriotic. Investing in the US economy at a time of particular weakness is even more patriotic and ought to be rewarded.
Expedite environmental reviews. Long term sound environmental practices cost money. Short of mass extinction, minimizing human effects on the planet requires advances in technology and environmentally responsible economic growth. Removing roadblocks imposed by those who are really using them as an excuse to oppose any industry won’t hurt the environment, it will provide the growth needed to promote rational conservation.
Subsidize environmental compliance. New and small companies are in the worst possible position to deal with expensive environmental regulations exactly when they need to be investing in production. Whether the subsidy comes in the form of a direct payment or a tax credit, if “green” is a proper public policy goal, small businesses that adopt environmentally sound practices should be assisted.
Eliminate trade barriers on basic resources. Capital goods, raw materials and intermediate goods should be free of any trade barriers beyond basic inspection of cargo.