[Kylie]

and knowledge of the global economy and as it is now, how would you go about fixing it? I hear so much analysis about things, but again, I don't really hear about solutions from people who seem to be more versed in the subject than I am.

In some ways, I consider this economic crisis to be a good thing. We live in an over-inflated, self-indulgent, materialistic society and that's going to play a HUGE role in this, or any other economic crisis. I don't think it was the policies of the last eight years, or one president's fault this happened, but I believe this latest thing started when things were good.

We, as humans, tend to overindulge without thinking of the long-term consequences of our actions and how that can directly affect us. Granted, I'm not saying we don't take risks, but we SHOULD be smart about it. I honestly think this way of life is what caused this economic crisis, and it's easier to take those risks when things are good because we don't think as much about the long-term consequences of our actions.

With that in mind, if you have any sort of knowledge about how the economy works, I wish for you to offer solutions as to how things can be fixed with this financial crisis. I'm looking for concise and detailed answers, but I don't want to be bogged down by jargon and rhetoric that I don't understand, which is what a LOT of people don't want. I'm just your average consumer who wants to know what the future will bring, and what can 'you' do about it. I'd offer one, but I don't have the knowledge or the ability to do that, but I do think as people, we should perhaps look to not living beyond our means. That means corporations and consumers.

[Kiroff]

Simple. Socialism and central economic planning.

Or the Libertarians here will say "Deregulate fucking everything! We need the gold standard and banks can't loan out money they have in their deposits! And a fuckload of financial regulations!"

Or the Liberals will say "We need more financial regulation and government control."

Or the Corporatists/Fascists will say "Hehe, continue, Liberals..."

That's pretty much it.

[RonPaulalways]

Kiroff has no problem with millions dying of starvation in collectivist camps.

The answer is to return to free markets: Stop bailing people out. Eliminate the income tax. Allow gold and silver to compete with dollars as legal tender. Eliminate the FDA. Eliminate the SEC. Eliminate the Federal Reserve. Eliminate the CRA. Let banks crash and burn if they've over-leveraged. Let people reallocate their capital.

As Peter Schiff says, "greed is normally balanced by fear, but the government took the fear out of the equation". We need to bring the fear back into the equation, or else greed will consume the economy.

[Gnote]

RPA,

Are you ever given pause by the fact that your economic policies aren't supported by your economics?

[Paradigm]

Land value taxation would be the best ways to achieve a fast recovery, as demonstrated by San Francisco after the fire of 1906, by helping rebuild infrastructure and maximize employment. I think some of the bailouts of financial institutions may have been necessary, but hopefully with the right recovery plan, we won't have to do such things in the future. I would drastically cut interest rates in the short term until we're out of this mess. Then, I'd probably peg the dollar to population growth so as to minimize both inflation and deflation, allowing for deviation in emergency circumstances.

[RonPaulalways]

RPA,

Are you ever given pause by the fact that your economic policies aren't supported by your economics?

What do you mean?

[SaulOhio]

We, as humans, tend to overindulge without thinking of the long-term consequences of our actions and how that can directly affect us. Granted, I'm not saying we don't take risks, but we SHOULD be smart about it. I honestly think this way of life is what caused this economic crisis, and it's easier to take those risks when things are good because we don't think as much about the long-term consequences of our actions.

While you are wrong about some of the symptoms, people being too "materialistic" (thats the whole point about economics, providing the material goods we need to survive), you have part of the cause identified correctly, taking too many risks without thought to the long-term consequences.

But the cause of that is government intervention, government trying to solve all sorts of problems that result from the risks we take going bad. If we build our homes in a wildfire prone area of California, and a wildfire destroys them, the government helps us rebuild after this "act of God". Then we are surprised when the next wildfire burns down our homes and we go running back to the government for help.

Same with our financial institutions. We have FDIC insurance, government bailouts, emergency loans from the Federal Reserve, The Fed setting low interest rates so banks can cover and shortage of money they have when depositors want it back, and so on and on and on.

Get rid of all that, and bankers and other lenders will find they have to think ahead to survive.

Its called "moral hazard".

Welcome to Moral Hazard

[Dave]

and knowledge of the global economy and as it is now, how would you go about fixing it? I hear so much analysis about things, but again, I don't really hear about solutions from people who seem to be more versed in the subject than I am.

You just need to read this forum a little more, Kylie. My answer will come at the end of this post.

In some ways, I consider this economic crisis to be a good thing. We live in an over-inflated, self-indulgent, materialistic society and that's going to play a HUGE role in this, or any other economic crisis. I don't think it was the policies of the last eight years, or one president's fault this happened, but I believe this latest thing started when things were good.

I couldn't agree more, Kylie. The Times (London, not New York) has a decent article on why a recession might be a good thing.

As our greatest Treasury Secretary Andrew Mellon said in 1929, "It will bring down the high cost of living and high living." (Unfortunately, Hoover did not follow Mellon's advice).

We, as humans, tend to overindulge without thinking of the long-term consequences of our actions and how that can directly affect us. Granted, I'm not saying we don't take risks, but we SHOULD be smart about it. I honestly think this way of life is what caused this economic crisis, and it's easier to take those risks when things are good because we don't think as much about the long-term consequences of our actions.

You couldn't be more correct, Kylie. Consuming more than we produce is at the heart of this crisis.

blah blah blah cheap ideological sloganeering blah blah

These comments are worthless. All of you are talking about how you would like things to be, not how we got into this mess we're in right now or how we fix it. RPA and SaulOhio touch on the crisis somewhat and I'm certainly sympathetic to their views, but neither of them seem to realize that immediate, sharp liberalization of the economy would provoke an economic and humanitarian crisis. And the outcome of that would be a civil war and a fascist strongman.

-----------------
-----------------

So how do we fix it? First, let's ask how we got there. Focusing on leveraged bankers, subprime mortgages, etc. is all important, but those are not at the root of this crisis. At the heart of the global crisis is the asymmetry of the United States' foreign trade. Our massive current account balance is the result of us consuming hundreds of billions of dollars more than we produce annually. And this is a global problem because the US Dollar functions as the world's international reserve currency. Foreign central banks hold two-thirds of their foreign exchange reserves as US dollars, and most international transactions are settled in dollars. Our imbalance of trade means that hundreds of billions of dollars are sent overseas to pay for our imports every year. Because we do not produce enough goods that foreigners wish to purchase, these dollars are recycled in our capital markets. Foreign holders of dollars purchase our equities (stocks), bonds, land, etc. Thus, the entire world is intimately tied into our capital markets.

Current Account Deficit


The Debt to Finance It


Consumer Credit


People not Bothering to Save Anymore


Just Look at Automobiles



Now, some might say, "So what? If we maintain a country that's a good place to invest, what's the problem?" But that's just it. If we consume more than we produce, investments to finance this are predicated upon the idea of a return. But if these investments do not flow into assets which will generate real wealth, then there can be no hope of the investments yielding a real return. The only way to earn a return is through speculation, that is, short-term investing to earn a profit based on a temporary expected rise in price, or asset stripping. Our Federal Reserve, desperate to prop up asset values to maintain domestic consumption and foreign investment, responds to this by flooding the market with new money. This new money is leveraged by banks, primarily investment banks, in speculative investments. In the 1990s the money flowed into technology stocks, even though many of these firms had never reported any earnings and had questionable business models. In this decade it has flowed into securitized mortgages for people who basically...can't afford a house and are so stupid they don't know they can't afford a house.

Now, this isn't to say that systemic risks in our financial sector aren't a problem. The only thing is, if it wasn't for the world being flooded with dollars, this would primarily be a domestic crisis. We'd have a banking sector crisis to solve and our currency would devalue. That would be that, although some foreign banks would get burned in the process. The Asian Crisis in 1997 and 1998 would be one correlary, although most of the capital inflows in those countries was actually going into factories, not consumer credit so people could buy new plasma screens or whatever. But yes, we need to solve the systemic risks in our banking system.

Now what systemic risks are there in our financial sector? They can be boiled down to three forces. Leverage, moral hazard, and social engineering. It is also key to remember that this is all enabled by the persistent expansion of our domestic stock of money engineered by the Federal Reserve System. By leverage, we mean borrowing money to take larger positions. This can magnify returns, by allowing you to realize bigger profits on successful investments, but it also magnifies risk, since potential losses ALSO require you to cover your debt. Portfolio theory holds that if you diversify your investments leveraged risk isn't an issue, since most investments should increase in value, but if the system itself is troubled then all your investments can see losses, and panicky selling by other speculators can drive losses down further. This can then cause a crash in the market, as happened in 1987.

The government tries to assuage this from time to time by offering insurance of sorts. The FDIC guarantees bank deposits (up to $100,000), the Federal Reserve is a lender of last resort to troubled banks, and the Treasury Department sometimes bails out the system. However, this just emboldens financiers to take BIGGER risks--this is what we mean by moral hazard. Why be cautious when you're going to get bailed out? As RPA cited Peter Schiff on, greed should be balanced out by fear.

The final major issue in our financial markets is social engineering. Our government has a goal of getting as many people as possible to own a house. Including people who can't afford them. This is, or was, accomplished by having federally guaranteed lenderes Fannie Mae and Freddie Mac purchase mortgages from originators, turn them into bonds, and sell them on the open market. Fannie and Freddie thus provided liquidity with the aim of getting more poor people houses...poor people who can't necessarily pay back their loans. The mortgage originators don't even care of course, since they've already packaged the debt and sold it. And people who purchase the securities assumed the debt was safe, because Fannie and Freddie were guaranteed by the federal government. And this proved correct, as Fannie and Freddie are now in conservatorship. The other element of social engineering was the Community Reinvestment Act. This piece of legislation was complicated, but basically it allows the government to shake down banks to force them to loan money to minorities undeserving of credit. To no one's surprise, most of the CRA loans were pretty dodgy. All of this social engineering led to tons of shit loans being made!

So, how do we fix it? You're already on the right track, Kylie. We need to stop brainlessly buying shit with money we don't have and get off our butts and work! Basically we need to do the following:

• Keep our dollar's value up sufficiently to prevent a flight of capital out of our economy
• Bring our production in line with our consumption
• Clear bad debt out of the system so that liquidity is restored and our banking system is sound
• Stop inflating the money supply so these bubbles are never created in the first place
• Reduce systemic risks in our financial sector

Many of these goals are related, but all must be achieved for an orderly exit from this crisis and a sustainable, prosperous future. In all honesty probably none of these will be achieved by our government and we will see a new depression.

Firstly, declare all debt owed to domestic lenders to be null and void. Business debts, mortgage debts, municipal debts, financial sector debts, etc.--all erased. This will improve the balance sheet of almost everyone in the country will be improved. Consumers can resume purchasing and businesses will be free to invest, shoring up economic activity and improving the underlying value of assets in the economy. Overnight debt will drop from over 400% of GDP to less than 100%.

But what of foreign lenders? That brings me to my second act, nationalize all debt owed to foreign lenders. This debt cannot be repudiated, as doing so would cause foreigners to abandon the dollar, crashing our economy as well as their economies (since they are tied to the value of assets they purchase here). These debts should be converted into Treasury bonds at a lower interest rate, and to further reassure foreigners all debt owed by the US government should be backed by assets owned by our government, primarily land and gold. This will lower the interest rate paid on the debt. This will also further improve the balance sheets of our businesses, consumers, and local governments. Almost every person and corporation in the country will suddenly have a positive net worth.

Now you might say, hold on, repudiating all that debt will making the entire banking system insolvent! That brings me to my third act, inject new capital into banks using the Federal Reserve's printing presses. This will not cause inflation, as all the domestic debt which was repudiated was money in and of itself. In fact, since only enough capital to keep banks solvent (rather than to match the value of all the repudiated debts), the stock of money in the economy will actually fall. The fall in the money supply, by the way, will also strengthen the dollar, which will end price inflation, make goods cheaper, and further reassure foreign investors. I would recommend injecting enough capital so that every bank has 50% reserves. The banks should then be permitted to lend out 60% of this new money over a period of perhaps two years, leaving them with 20% reserves and a new portfolio of loans. The precise figure would have to be worked out, along with regulations governing which type of loans are to be made.

Now that we've cleared bad (well, all!) debt from the system and stabilized the value of the dollar, we need to make this impossible to ever happen again. This brings me to my fourth act, nationalize the Federal Reserve. It's time to take control of the money supply out of the hands of banks. Nationalize the Fed, then pass a law requiring the stock of money to be fixed. Creation of new money should not be allowed except in times of national crisis. To prevent banks from inflating the money supply themselves, require banks to have a 20% reserve ratio, and within 10 years to have a 33% reserve ratio. Banks will thus only be able to create 3 dollars in loans for every dollar in savings, restricting wild fluctuations in bank credit in the economy. The creation of new asset bubbles, and thus busts and crashes, will no longer occur. We could even toy with abolishing fractional reserve banking, but I think some leverage is worth it.

Now we need to figure out how to eliminate systemic risks from the financial sector. This will require a couple of steps. With the banking system stabilized, eliminate the FDIC. Banks MUST fear bank runs. Without the threat of a public raiding them, they can take more risks. And with a 33% reserve ratio, banks are less shaky to begin with so the public's savings will be at much lower risk. We also need to eliminate Fannie and Freddie, along with the Federal Housing Authority. Can't afford a house? Too bad, rent! We do not want bonds all over the market based on lending to poor people who can't actually afford homes. For the same reason Abolish the Community Reinvestment Act. Being black does not mean you have a right to a mortgage you can't afford. Now, we still need to restrict leverage. In fact, I would suggest a number of changes here:

• Require 20% down on all mortgages
• Enforce the law against naked short-selling
• 33% capital requirement for all financial leverage (e.g., margin buying)--the same rule banks have to follow
• Outlaw consumer debt (except for home mortgages). You don't need to borrow money to buy a TV, a car, a vacation, etc. These loans are inherently riskier (credit card debt might blow up next), they keep people from saving (all investment comes from savings), and they raise the price of getting money for productive purposes.

I would also suggest some changes in corporate and financial governance:

• Abolish the mark-to-market rule. This forces banks to value their assets at the latest market price. Replace with a rule requiring them to value their assets on a three-year average. In the event of a systemic crisis, assets are suddenly valued at zero and banks can become illiquid. By having them value their assets at a three year average, liquidity is preserved.
• Repeal Sarbanes-Oxley. This makes accounting compliance extremely difficult and discourages public listings on our stock markets, which reduces the number of attractive investments.
• Outlaw the practice of moving assets and liabilities off-balance sheet. This just allows companies to hide dodgy investments from their investors, so seemingly healthy companies can actually be very unhealthy (e.g. AIG).
• Scrap Chapter 11 bankruptcy. A company that can't pay its bills is insolvent and should go into the receivership of its creditors. No more of this ridiculous shit of judges deciding which creditors can be paid.

Now all we have to do is...bring our production in line with our consumption. This is by far the most difficult thing to achieve, and will not happen overnight. I will suggest the following:

Close all government budget deficits immediately. Outlaw budget deficits except in a time of war (declared war).

There is no reason for an entity with taxation authority which can also cut its spending at will to borrow money. Cut the fucking budget to balance it out. Our budget deficits force us to borrow even MORE money from overseas, or, if we borrow domestically, it crowds out capital for private investment.

The exception here would be borrowing for infrastructure. I would suggest that state, county, and local governments be allowed to set up infrastructure banks. They could also band together to set up infrastructure banks. These banks could issue bonds, guaranteed by the government, with the purpose of building roads, sewers, railroads, canals, etc. The bonds would be backed by the infrastructure itself, and could be serviced with user fees or tax revenue.

Cut our domestic consumption and increase our rate of savings

This will produce problems for some businesses and foreign countries, but we simply consume too much. Now, the good news is some of our earlier reforms will cut consumption. Outlawing consumer debt and budget deficits will both immediately cut consumption. No more auto loans or credit cards. Several of my other proposed reforms will address this issue, and I will explain how.

Fix healthcare, or at least stop forcing businesses to pay for it
I'm not going to bother dwelling on how we should fix healthcare or my own pet proposals. The point is that making businesses pay for healthcare is a huge drag on our competitiveness and the American economy. Single-payer healthcare, free market healthcare, or hell, make healthcare illegal. Whatever works! Every car GM builds has over $2,000 in healthcare costs. We're not going to compete with foreign manufacturers at home or export goods if our businesses need to pay for healthcare too.

Scrap payroll taxes
I'll elaborate on how we should change our entire tax policy later, but this is key. We're trying to compete with low wage countries, but yet we're increasing the cost of employing people? Is this a joke? Getting rid of payroll taxes will make employing people 7.62% cheaper for every business in America. More jobs, more money to invest, cheaper products.

Stop making businesses pay for unemployment insurance
Again, this makes employing people more expensive. Worse, if a business has to fire people, their unemployment insurance rate goes up! Most European countries have a common fund for unemployment insurance paid for by taxes. We could emulate their approach, although my preferred approach is getting rid of it entirely.

Tax consumption, not production and investment
Income taxation is insane, because that's income earned from producing things! Taxation on capital gains, which is investment income, or on dividends, is equally insane. If we make taxation fall on consumption, then domestic consumption will fall, savings and investment will rise, and our exports will be cheaper.

I would propose the following to achieve this:

• Flat personal income (this could be progressive, by the way) tax with all savings/investment 100% deductible. Capital gains should not be taxed.
• Mandatory savings plan requiring contributions of at least 20% of income, preferably higher. Which assets can be invested in and what the savings can be used for are both situational. (by the way: this will also fix social security)
• Value-added tax (similar to a sales tax, but harder to cheat on) not higher than 10% (to avoid black markets)
• Sliding corporate tax rate which varies inversely with the proportion of value added in the United States. That is, the more value added outside the United States, the higher the effective tax rate. Expenditures on investment and R&D 100% deductible (currently investments must be depreciated over the life of the asset and R&D is not deductible). Corporate capital gains should not be taxed.
• User fees for usage of public infrastructure/resources, with higher rates on individuals to subsidize lower rates for businesses. On privately owned infrastructure taxes, subsidies, and regulations should be used for the same effect.
• Pigovian taxes
• Pollution taxes, provided this doesn't harm competitiveness
• Strategic trade policy (ie, highly situational and not subject to an ideal definition)
• Forced labor by everyone in prison (a form of taxation if you think about it)

By the way, our corporate tax rate is the second highest in the world.

Fix and improve our infrastructure
How can you build anything when our bridges are collapsing? Manufacturers need electricity, raw materials, parts, and to be able to ship their products. Their workers also need to get to work. All of this requires infrastructure. The better the infrastructure, the lower logistics costs are and the more competitive we become. Currently, logistics costs in America are 10% of manufacturing costs, compared to 25% in China. But we can do better. The following should be done:

• Build a high-speed maglev rail network that can carry freight. This will have much lower operating costs than conventional rail, steel-wheel high-speed rail (as Europe has), or truck freight on highways. It will also be as fast as aircraft. People and goods will be able to move much faster across the country for much less money. This will cost $1 million per mile to build (same has normal high-speed rail, compared to $10 million per mile of expressway). We'll need at least 150,000 miles. In other words, it will cost $150 billion.
• Overhaul and upgrade our electrical generation and distribution systems. This is a very complex topic so I won't get into the specifics, but our electric power grid isn't what it once was. We need to revamp it so that electricity costs are lower (much lower), reliability is 100%, and we no longer need to use fossil fuels to generate electricity. This will cost around $1 trillion.
• Efficient metropolitan transit networks to serve individuals and businesses. Traffic jams should not exist. Manufacturers should be able to access heavy shipping in densely populated areas. Every metropolitan area needs new ring roads, cross-town expressways, light rail networks, subway systems, spur railroads, and canals. I should also mention that most of our sewage systems and drinking water systems require overhaul, but those aren't really important to getting out of this mess. This will cost around $2 trillion.
• Fix the water shortage in the West.
  Manufacturers and farmers need a stable, predictable supply of affordable water, and a lot of our farming and manufacturing is in the West. This is a very complex issue so I won't get into how it must be solved, but suffice to say it will cost hundreds of billions.

That's about it for infrastructure we need to be world competitive, although I would suggest other infrastructure projects for other human needs. Obviously these things will not be done overnight either and will take years.

Energy Independence
We currently have to import about 13 million barrels of oil a day. Get rid of this, and that's a huge share of our trade deficit. Everyone has their own pet theory of how to achieve energy independence, but suffice to say it is possible to do. My personal preference would be to replace fossil fuels in electricity generation with nuclear power, expand domestic oil and gas production, put natural gas into our transportation sector, make our economy more energy efficient, and turn coal into oil (we have the world's largest coal reserves).

Modernize our Capital Plant and Machinery
Many of our factories and machine tools are obsolete. We can use the federal government to provide loans, or take non-voting equity stakes in companies, so that our manufacturers can modernize their factories with the latest capital equipment. We should require this capital equipment to be, as much as possible, manufactured in the United States by American owned companies and American owned workers. The federal government could directly negotiate with German, Swiss, and Japanese machine tool manufacturers to transfer their technology to us where we are not up-to-date. Just for the record, the value of all capital plant and machinery in the United States today is about $11 trillion.

Improve our Education System and Shore up our Skills Base
I'm not going to turn this into an education thread, but our educational system is awful. We need urgently to fix it. I suggest we import foreign professionals where we are lacking in skills now while we fix education.

Give our Manufacturers Some Breathing Room to Transition
Wiping all debt off their books, getting rid of payroll taxes, and changing taxation policy will certainly help. But foreign competition is still strong, the dollar will be high thanks to other actions I've suggested, and consumer demand will be down. To make this transition safer, I suggest using WTO rules to cap our trade deficit and to raise tariffs to the maximum level allowed by the WTO. Generally, this is around 5%, so we're not looking at a protectionist wall or anything--just a little breathing room. The way we levy tariffs should also be changed from first sale (when a product leaves a foreign factory) to last sale (when it enters an American port). This will increase the actual tariff rate around 50%. As such, you're looking at a 7.5% price advantage for American goods. Not much, but enough to get some breathing room.

Change Defense Procurement Procedures
The Pentagon spends almost $80 billion annually on procurement. This makes it the largest purchaser of manufactured goods in America, and certainly in control of America's largest capital budget. Procurement rules are basically determined by lobbying and serve to ensure cost-maximization, whereas civilian manufacturing seeks to minimize costs. By changing Pentagon procurement rules, we can have a powerful impact on the overall manufacturing economy. I would suggest the following changes:

• Outlaw cost-plus contracts. Cost-plus contracts basically guarantee a company money to cover their costs plus a profit rate. The result is that companies increase their costs dramatically. Surprise! All contracts should be fixed cost contracts, determined by a competitive bid. If a company comes under the cost, they make money. They go over, they lose money.
• Build performance incentives and penalties into every contract. If a company beats the goals outlined in the program, they should get rewarded with more money. But if they do worse, they should be penalized.
• Mandate statistical quality control. Most civilian manufacturers have adopted this, but not all.
• Require defense contractors to have at least 25% of their sales come from the civilian sector within 10 years. This will prevent them from being too dependent on defense, and the competitive rules in the civilian world will spread.
• Require all defense contractors to have civilian conversion plans, so that they are not overly dependent on defense spending.
• Require defense goods to be made in America and parts content to be American. Escalate this overtime, since implementing it overnight would make many current weapons systems untenable.

Invest More in Research and Development
The change in tax rules will increase corporate R&D, but government and public universities should increase their commitment to basic scientific research. This will yield many valuable spin-off technologies for the economy which our companies can seize upon. We should also establish research prizes again.

Tort Reform
Want to get a CEO's attention? Say UNLIMITED LIABILITY, he'll shit his pants. Why would anyone invest in America when lawyers can ruin any company overnight? I propose the following reforms:

• Outlaw venue shopping. Why should a company in New York be sued in Iowa? Ridiculous. The lawsuit should take place in the jurisdiction where the damages allegedly occurred.
• Outlaw class action lawsuits.
• Outlaw punitive damages. Damages should not exceed actual losses incurred.
• Establish different courts for different types of cases, with court personnel (clerks, judges, etc.) being trained in the matters at hand

Overhaul the Regulatory Framework
The Federal Register adds 70,000 pages of regulations every year. OSHA has pointless regulations like requiring all railings to be 42" high. There are over 1,000 mandated grades of gasoline. All 50 states govern insurance in a different manner. Seriously, what the fuck? We need a complete overhaul.

• Scrap existing regulations. All of them.
• Decide what social, environment, safety, etc. goals we want to achieve with regulation.
• Write new regulations, which should be harmonized across the entire economy.
• Regulations should always emphasize results and not the process. Let business figure out the best way to comply! If they fail to comply, fine the hell out of them.
• All regulations should have a fixed lifespan, which gives us the opportunity to review regulations periodically to see whether or not they're worth keeping or reforming.
• Regulators should have technical training in whatever the hell they're regulating.

Well, that's about it for now. If I think of more I'll bring it up. Feel free to ask questions.

[noemon]

The Libertarian rants, of de-regulate everything is simply impossible. Theoretically it could work only in the long-run, if we assume the market as a natural force on her own right.

However, no economist or mathematician is capable of predicting when will the market settle(.ie how long is the long-run?), and no person in his right mind can allow speculators run freely until they settle the market on an undefined period of time, that may or may not come.

This is mere buffoonery.

All this is caused because governments have reduced requirements, government reduces building requirements, next day you see a conglomeration of the ugliest, cheapest building getting erected like mushrooms. Government reduces health-standards next thing you see is genetically modified products on your table.

Government reduces fiscal regulation or as of late accommodates the needs and demands of the financial institutions to run deficits, and you get bubbles like this one.

All examples illustrate the sad reality, no sane person can promote the insanity of allowing anarchy(de-regulation) among sharks. People fear anarchy among prols, who at best will demolish a confectionery shop in their neighborhood, and some argue about legalized and standardized anarchy for the sharks? Whatever.

I dont know how will America get out of this credit crunch, because i do not have the variables, ie which businesses aside from the financial institutions are affected, which industry they belong to and so on. It is a very complicated subject because, of the interlinking of these institutions with various other industries that in some cases are vital. maybe the bail-out is the only solution i dont know, and to avoid further problems like that, a whole lot of regulative measures should be taken against the banks and the other financial institutions.

[Kiroff]

Dave, just because your post is comprehensive does not mean it is not ideologically charged. All it does is give some responsibility and take away other responsibility. And it does create further centralization and corporate-government mergers. Unless what you want is me to write a comprehensive programme as well so that we can compare them. Which I can offer in due time.

[Dave]

Kiroff, I didn't say I was ideologically neutral, I merely pointed out that you (and your libertarian foils) were not offering solutions, but slogans. I have offered solutions. Curiously, most Marxists have not at all thought through how a socialist economy would function. I have spent years studying the Soviet Union and socialist economics, and often I feel like I have a much better grasp of how to centrally plan the economy than most socialists. But that is a separate issue.

[Michaeluj]

As much as Dave's plans inherently irk me, I must admit that they could prove to be usful, in that a desperate political change would require some major revamping of the economic base in order to provide a less painful transition and to put the country in a rapid state of competativeness. I mean, 150 billions dollar railroad, no matter how useful, is still an unbelivably large investment. Plus, we have to take into consideration that some people might not want to sell their property at whatever cost, making the project moot. I guess I see the practicality.

[Dave]

As much as Dave's plans inherently irk me, I must admit that they could prove to be usful, in that a desperate political change would require some major revamping of the economic base in order to provide a less painful transition and to put the country in a rapid state of competativeness. I mean, 150 billions dollar railroad, no matter how useful, is still an unbelivably large investment. Plus, we have to take into consideration that some people might not want to sell their property at whatever cost, making the project moot. I guess I see the practicality.

People don't have to want to sell their property. They can be compelled to sell through Eminent Domain. A nationwide maglev rail network will quickly pay for itself if the cost is an issue. Not only will it generate large receipts from both freight customers and passengers, but the increase in economic activity it will cause will cause a large increase in tax revenues. The routing of traffic away from airports and highways will reduce expenditures needed to maintain those assets as well.

[Michaeluj]

That's what I meant: the state can force eminent domain, but a private company would find problems.

[Dave]

Eminent Domain can be used for private development projects, and infrastructure has long been established as a sector where Eminent Domain is applicable, even if it is to be privately owned.

[Michaeluj]

Oh, okay.

[Kiroff]

Kiroff, I didn't say I was ideologically neutral, I merely pointed out that you (and your libertarian foils) were not offering solutions, but slogans. I have offered solutions. Curiously, most Marxists have not at all thought through how a socialist economy would function. I have spent years studying the Soviet Union and socialist economics, and often I feel like I have a much better grasp of how to centrally plan the economy than most socialists. But that is a separate issue.

True, but your plan, just like all of ours requires a restructuring of the political system that would undoubtedly have to alter the constitution. So, even when it is much more comprehensive, it still requires much more authority than what the state currently has. In that was it is a slogan as it is not possible within the current framework, and is instead something that has significant political change as a prerequisite.

[Dave]

The political restructuring is nothing more radical than what took place in 1913 or 1933, and frankly elements could be stripped out or revised to make it workable within the existing governmental framework. I agree of course that politics and economics are intertwined.

The purpose of this thread, by the way, is to explain the crisis and offer solutions. As I see it I am the only person who has attempted to do so.

[RonPaulalways]

What a great post by Dave. It's inspired me to put a more detailed plan out.

I think Dave makes a good point about infrastructure. I am a strong supporter of State economic autonomy, but there is a need for a governmental mechanism to coordinate cross-state infrastructure projects.

In fact, James Madison wanted to allow canals and roads to be built across America, but he could not find the authority in the Constitution:

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In his last act before leaving office, Madison vetoed on states' rights grounds a bill for "internal improvements", including roads, bridges, and canals:

Having considered the bill ... I am constrained by the insuperable difficulty I feel in reconciling this bill with the Constitution of the United States.... The legislative powers vested in Congress are specified ... in the ... Constitution, and it does not appear that the power proposed to be exercised by the bill is among the enumerated powers.
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He urged Congress to amend the Constitution to permit the federal government to build national infrastructure:

Among the means of advancing the public interest, the occasion is a proper one for recalling the attention of Congress to the great importance of establishing throughout our country the roads and canals which can best be executed under the national authority. No objects within the circle of political economy so richly repay the expense bestowed on them; there are none the utility of which is more universally ascertained and acknowledged; none that do more honor to the government, whose wise and enlarged patriotism duly appreciates them. Nor is there any country which presents a field where Nature invites more the art of man to complete her own work for their accommodation and benefit. These considerations are strengthened, moreover, by the political effect of these facilities for intercommunication, in bringing and binding more closely together the various parts of our extended confederacy.

Whilst the states, individually, with a laudable enterprise and emulation, avail themselves of their local advantages, by new roads, by navigable canals, and by improving the streams susceptible of navigation, the general government is the more urged to similar undertakings, requiring a national jurisdiction, and national means, by the prospect of thus systematically completing so inestimable a work. And it is a happy reflection, that any defect of constitutional authority which may be encountered, can be supplied in a mode which the Constitution itself has providently pointed out.

Federal Infrastructure Board

So what I propose is a Constitutional amendment creating strict, focused provisions allowing the federal government to involve itself in national infrastructure.

I think Dave is brilliant judging from the amount of knowledge that went into creating his proposal, and if America was going to have a central planner, I would vote for Dave for that position, but I think a distributed collaborative approach is always better than one where a single individual decides on matters.

For this reason, I would have a "federal infrastructure board", which would administer projects voted on by property owners across the US. The projects would be funded by a land tax, and would be voted on by property owners. Each person's vote would be proportional to how much land they have. So if one individual owns 0.5% of the land in the US, he would have a 0.5% vote.

Some of the provisions would be:

1. The Federal Infrastructure Board (from here on referred to as the Board) would be given the power to build and maintain infrastructure for the continental US (excludes Alaska and Hawaii)

2. The projects the Board undertakes would have to be of vital importance to AT LEAST two states.

3. All efforts to create the proposed project through the coordination of state governments would need to have been exhausted for the Board to have authority to undertake it.

4. The Board's annual spending could not exceed 30% of annual federal budget

5. At least a 1% share of the total vote would need to nominate a project for it to be brought up for a general vote.

6. All property owners would need to participate in the general vote. They can delegate their voting rights to another party.

7. In the first 6 months of the year, projects can be nominated. In the 9th month, all nominated projects would be brought up for a vote

8. Each property owner can only vote 'Yes' on projects where they will pay a land tax towards should it pass

9. There is a maximum limit of 30% of the annual federal budget that the cost of the projects that a property owner votes 'Yes' on can be.

10. There are two tax structures that a project can use, a gradient tax structure, or a uniform tax structure.

A gradient tax is higher at a point, or a line, and gradually decreases at a set rate towards the outer rim of the taxed area.

A uniform tax is a uniform fee levied on each acre of the taxed area.

Each project can only use a single tax structure.

11. The share of the fees levied from each property owner for a project have to be proportional to the benefits that property owner derives from the project.


Case Example

In the case of the high-speed maglev rail network that Dave proposed, here is how it could be funded through this governing framework:

1. This infrastructure project would require two official projects to pass for it to be launched. There would be a project that levies a gradient tax along each side of the maglev line up to 150 km from the line and 300 km from its major stations that allow freight loading, and another project that would levy a uniform tax on the rest of the continental US.

2. Property owners with at least a 1% share of the land area that would be taxed under each respective project would need to nominate the two projects.

3. In the general vote, if both projects get over 50% of the vote, then the maglev rail construction project would be launched.

There are 1,995,874,608 acres in the continental US. If the area under the gradient tax structure is 204,177,610 acres, and an average of $200 is levied on each acre within this area (with the fee increasing in proportion to how close an area is to the maglev line or major station), that would raise $40.835 billion.

If $61.80 is levied on each of the 1,791,696,998 acres under the uniform tax structure, that would raise another $110.727 billion.

This would be a total of $151.562 billion for the high speed maglev line.

If the fees are collected over a 5 year period, that would be an average of $40 per acre per year in the area under the gradient tax structure, and $12.36 per acre per year in the area under the uniform tax structure.

Here's a visual of the concept:




Reducing the size of the federal government

That's for infrastructure, now as far as getting federal government spending down to 3% of GDP (from 20% now) and removing the vast unconstitutional regulatory framework in place now, I would propose following a 15 year plan.

A Constitution board would be setup that would be in power for 15 years, and would have as its task to return the federal government to its Constitutional scope over a 15 year period.

The task of reducing spending and eliminating regulations would be broken down into 15 bite sized portions, and one portion would be tackled each year.

Spending would need to decrease by about $110 billion a year, and exactly how regulations would be phased out could be worked out in consultation with industries to cause the least amount of shock to the economy.

Civil Effort

This political effort can only succeed with massive public support. What we need is a coordinated effort by a good portion of the 297 billionaires in the US to make this happen. We need a council, a round table, where the wealthiest Americans congregate and coordinate to spend considerable amounts of money on educating the public of the importance of this kind of effort, and funding candidates that support it.

[Figlio di Moros]

RPA, the Constitution does allow for Infrastructure overhauls in the General Welfare clause; however, it is a very broad statement and is heavily abused with many programs that do not actually improve the welfare of this nation as a whole. I would be in complete support of a new amendment enumerating the intent and extent to which the clause ought to apply.

Dave, that's a very bright plan and I'm particularly fond of your rail idea, but there were a number of questions I have concerning it. First, the $150 billion for the rail and the $1 trillion for energy overhaul, how long of a period would those cost occur? I've heard the trillion dollar cost before in Picken's Plan, which would occur over 10 yrs, but an efficient overhaul would require both nuclear power and wind power, as well as hydro-electric, geothermal, etc. Also, would you propose paying for them outright and be government run, or investing it in private companies to utilyze and eliminate the overall cost burden of such projects?

I am also concerned about outlawing consumer credit; while you're correct about not needing credit for expensive shoes, new TV's, upgraded computers(which don't necessarily work better than the one's they replaced), etc., you seemed to be saying automobiles were in that company. That I would disagree with. A car is essential to many people today, particularly for getting to work but also for some entrapaneurs to do their job or even for projects on the weekend, and the cost of buying one would be too high for many people if they had to buy it outright.

As far as the federal reserve is concerned, why simply halt the increase of our monetary supply when returning to the gold standard would practically garantee it? Could you also explain more in depth how your third act, injecting new capital into the banks, would actually cause less money in circulation?

That's all I can think of right now.