Wednesday, August 3, 2011

Now that the debt limit is done,what is next?

How do we fix the economy?
First we have to understand the problem. Consumer spending (cars, houses, clothes, appliances, entertainment, sporting goods, and everything else) is down. Seventy percent of the US economy was consumer spending. When consumer spending goes down, farms, factories, and everything else has fewer sales, leading to layoffs. If sales go away, no company can retain all it's workers.
This feeds on itself. When people are laid off they start saving all the money they can. When one person is laid off, twenty people hear about it and begin to fear for their jobs too. People fearing for their jobs react much the same way as people who are actually laid off, they start saving as much as they can.
So how to fix?
One fix is to stimulate demand. That is best done by introducing new "must have" products that every one goes out and buys. Apple is one of the few companies still inventing new stuff. We need more people like Steve Jobs.
Another way of stimulating demand is to make stuff cheaper. We could scrap an ocean of cost enhancing laws. Corporate Average Fuel Economy (CAFE) raises the price of new cars. EPA's tighter ozone regulations raise the price of electricity. EPA's encouragement of boutique gasoline blends raises the price of gasoline. Real estate "closing costs" jack up the price of houses. The endangered species act makes projects more expensive. Building codes demanding handicapped access and sprinklers in new houses raise the cost of housing. Liability and lawyers raise the cost of everything.
Then we can lift some costs off companies. Repeal Sarbanes Oxley, repeal Dodd Frank, repeal Obamacare, shut down the SEC because it is ineffective, and simplify the corporate income tax.

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