There has been much talk about how the two parties will act in the new Congress. What should happen is that the administration, and in fact the Republican leadership in the House, should bring forth the program the country has been impatiently awaiting for two years. Unemployment should be directly attacked and infrastructure deficiencies addressed by devising workfare programs that would put the able-bodied unemployed to work for six-month tours, and enlisting as many of the not-so-physically-robust unemployed as reasonably feasible in related clerical tasks. Unlike the statistical treatment of analogous people in the New Deal programs such as the TVA, Lincoln Tunnel, and Triborough Bridge, such program participants should be considered employed. (It is this statistical anomaly, which went inexplicably uncontradicted for decades even by pro-Roosevelt historians such as Frank Freidel, Arthur Schlesinger, and Doris Kearns Goodwin, that gave rise to the fatuity that the New Deal did not ameliorate the Depression.)
At least half the unemployed and under-employed could be absorbed in this way, and it would be much less costly than continuing straight cash payments to the unemployed and paying union rates on infrastructure improvements. Of course, the White House would have to stop truckling to the AFL-CIO, but if it hasn’t acquired the will to do that yet, its death wish continues unabated, and will be consummated in complete and spectacular success in two years.
Economic activity should be stimulated with Reagan-style income-tax cuts. This is the only stimulus that works, along with resumption of fiscal and monetary responsibility, which strengthens the psychological side of the economic equation. And as I have repeated ad nauseam in this space, economics is half Grade Three Arithmetic and half Psychology 101.
The deficit should be narrowed and revenues raised by a series of consumption and financial-velocity taxes. A national sales tax on luxury-goods sales would raise income, encourage savings and investment, and fall largely on, apart from the retail industry, French and Italian luxury-goods industries and the German and Japanese automobile and engineered-products industries. The U.S. carried the economies of those countries — four of the world’s five leading economies apart from the U.S., U.K., and China — for decades, and they are going to have to thrive a little more independently. There should be a sharp increase in taxes on elective gasoline sales (with rebates to those who make their living in gasoline consumption, such as taxi owners), along with incentives for hybrid cars, increased natural-gas use, nuclear-power development, and increased domestic and offshore oil exploration.
And in the financial-velocity category, most financial transactions, underwritings, financial-markets trades, corporate-financial-advisory and merchant-banking services should be taxed on a sliding scale tapering down from a maximum of 10 percent, to lift the icing off the over-turboed financial industry, drive more of the talented people in that industry into more productive occupations, and reduce the obscenity of some corporate- and personal-income levels in that over-indulged industry. This would be much better than the administration’s antediluvian fetish for overregulation. It would both reduce America’s addiction to the fraud of the service economy, and remove from GDP figures a large ingredient in mere velocity: large amounts of money chugging around a tight circuit without representing any productive work. I have used before the example that if Paraguay decreed that everyone in the country must write a poem and sell it to someone else, so each adult citizen buys and sells ten poems a day for $100 each, each day for a year, the country would have the highest per capita income in the world and the fifth largest economy in the world. This, of course, would be a fraud, but there is an element of this in the colossal income of the financial and other service industries of the U.S., including most aspects of law and consulting, that represent hard work and ingenuity, but little productive work. The parallel is not altogether applicable to America today, but there is too much foam and not enough wave, and the tax system, used judiciously, could usefully reorient the economy and raise revenues very appreciably at the same time. The federal government’s ability to raise revenue and increase the money supply should also be put more at the service of the strapped states and municipalities, provided they meet rigorous criteria of economization.
Mortgage payments should be only half-deductible for tax purposes, and then only if the homebuyers have a reasonable amount of equity in the property. The tax system should incentivize consumer debt-reduction. And income disparities should be approached at least preliminarily by anti-poverty measures, starting with a modest wealth tax on the genuinely affluent, that would be paid toward poverty-reduction or job-creation measures that could be selected by those paying the tax. This tax would be self-reducing as defined poverty was reduced, and would give the ablest financial minds in the country a role in poverty reduction. The wealthy would have an interest in the elimination of poverty: to reduce their own taxes.
These measures would shrink the budgetary and current-account deficits, sharply reduce dependence on foreign energy sources (and make Islam much easier to deal with in the world), and put an end to the recession and to all the defeatist bunk about having to get by with reduced expectations of economic growth. There is no need at all for any such spirit of resignation.
If the administration really wishes to have a health-care reform worthy of pride and capable of generating the approval of historians and voters, it should propose an immediate second stage to temper and fine-tune this year’s Frankenstein Monster of an initiative before it is dismantled by the states, Congress, the courts, and the ingenuity of the discontented. The basic problems, completely unaddressed by the Obama-Pelosi measure, are that health care costs $7,000 per capita in the U.S., $4,000 more than in comparable prosperous democracies with sophisticated and universally accessible medical care (Australia, Canada, France, Germany, Japan, and the U.K.), and that 70 percent of the people have heavily loaded health plans that are paid for by their employers, so 70 percent of people think the system is excellent, and the remaining 30 percent, 90 million people, are in varying states of disenchantment. Everyone should receive a family medical tax exemption (or grant, if their incomes don’t justify such a tax exemption) to spend as needed in medical matters, with insurance for legitimate overruns; and drug prices and medical-related legal costs should be capped as they are in other serious countries. Those who receive more than the general allocation of medical benefits should be taxed on the additional amount at income-tax rates. This would be genuine health-care reform that would expand coverage and reduce costs, but it will require the support of both parties.
If either party proposed any such measures as these, the talk of gridlock and public acrimony would subside and the public’s esteem for its legislators and for the administration would rise from their present dangerously low but richly deserved levels of widespread disdain and hostility. At this early date, all I have heard is stale threats to shut down the government, the surest route to a thorough house-cleaning of elected officials again in two years. Any politician interested in reelection should try a little original thinking.