Occam's Razor
As regular readers know, I consider myself to be a limited government pragmatist. In fact, one of the two primary purposes of this blog, along with the exposure of intellectual dishonesty among the political and chattering classes, is to promulgate the importance of limiting government's insinuation into our quasi free market system.
Here we stand (barely) following a multi hundred billion dollar intervention into the financial markets by the Federal Reserve and Treasury—some of it warranted, some of it not—and poised on the threshold of nearly an additional $1 trillion of so-called stimulus, an amount, in real dollars, that is two times what was spent on the New Deal. Why?
It seems as if Washington has been enveloped by a spend first, ask questions later mentality. The herd is stampeding, and it's about to trample prudence and common sense.
Most intelligent observers, including President-elect Obama, agree that the current crisis is largely one of confidence; yet, what is the prescription being concocted? Massive government spending. That's right, the same medicine that failed miserably in the 1930's. Since when does government spending engender confidence and stimulate broad-based economic recovery? Sure, it will be good for those on the receiving end of the contracts, but what does it do for the other 99% of companies? Does it provide them with an incentive to invest in plant and equipment? Does it encourage them to hire? Does it inspire and/or fund innovation? Of course it doesn't.
Without a doubt, the best way to dig ourselves out and drive the widest possible participation is to incent the private sector. Remember good old-fashioned, All-American greed (properly regulated, of course). If, as most agree, the private sector is being paralyzed by fear and trepidation, then why not induce a response that trumps said fear and trepidation? That would most successfully be done via tax policy. Unfortunately, that also happens to be the third rail of Democrat/Republican politics. As such, Obama, in all probability, will be forced to capitulate to party orthodoxy and use most of his bullets on "solutions" that will drive up the deficit, rather than provide legitimate long-term, sustainable, and structural benefits to the economy. We will be lucky if a third of the package is tax-oriented; and most of that will probably be more spending dressed up as tax cuts (i.e. rebates with no lasting value) .
The Federal corporate income tax, for example, could be eliminated for a period of time at a cost of roughly $300 billion per year. Imagine the spark that would provide. And, if history is a guide, rather than costing us money, it would very likely increase government revenue via taxes: 1) paid up and down the production supply chain; 2) by end consumers, and 3) from higher employment. There are many other potential tax incentives that would be equally catalytic (without even getting near individual marginal rate reductions—a non-starter for Democrats).
If policy makers only understood and were motivated by Occam's razor (i.e. all other things being equal, the simplest solution is the best), maybe they wouldn't continually saddle us with the most convoluted, expensive, politically motivated, and ineffectual alternatives. Regrettably, they instinctually see government in a lead, rather than supporting role.
And we get stuck with picking up their tab.
Here we stand (barely) following a multi hundred billion dollar intervention into the financial markets by the Federal Reserve and Treasury—some of it warranted, some of it not—and poised on the threshold of nearly an additional $1 trillion of so-called stimulus, an amount, in real dollars, that is two times what was spent on the New Deal. Why?
It seems as if Washington has been enveloped by a spend first, ask questions later mentality. The herd is stampeding, and it's about to trample prudence and common sense.
Most intelligent observers, including President-elect Obama, agree that the current crisis is largely one of confidence; yet, what is the prescription being concocted? Massive government spending. That's right, the same medicine that failed miserably in the 1930's. Since when does government spending engender confidence and stimulate broad-based economic recovery? Sure, it will be good for those on the receiving end of the contracts, but what does it do for the other 99% of companies? Does it provide them with an incentive to invest in plant and equipment? Does it encourage them to hire? Does it inspire and/or fund innovation? Of course it doesn't.
Without a doubt, the best way to dig ourselves out and drive the widest possible participation is to incent the private sector. Remember good old-fashioned, All-American greed (properly regulated, of course). If, as most agree, the private sector is being paralyzed by fear and trepidation, then why not induce a response that trumps said fear and trepidation? That would most successfully be done via tax policy. Unfortunately, that also happens to be the third rail of Democrat/Republican politics. As such, Obama, in all probability, will be forced to capitulate to party orthodoxy and use most of his bullets on "solutions" that will drive up the deficit, rather than provide legitimate long-term, sustainable, and structural benefits to the economy. We will be lucky if a third of the package is tax-oriented; and most of that will probably be more spending dressed up as tax cuts (i.e. rebates with no lasting value) .
The Federal corporate income tax, for example, could be eliminated for a period of time at a cost of roughly $300 billion per year. Imagine the spark that would provide. And, if history is a guide, rather than costing us money, it would very likely increase government revenue via taxes: 1) paid up and down the production supply chain; 2) by end consumers, and 3) from higher employment. There are many other potential tax incentives that would be equally catalytic (without even getting near individual marginal rate reductions—a non-starter for Democrats).
If policy makers only understood and were motivated by Occam's razor (i.e. all other things being equal, the simplest solution is the best), maybe they wouldn't continually saddle us with the most convoluted, expensive, politically motivated, and ineffectual alternatives. Regrettably, they instinctually see government in a lead, rather than supporting role.
And we get stuck with picking up their tab.
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