March, 2008
Righting the Course
Nicholas Fitzpatrick
The Cure for the Common Recession
Nipping at the heels of the subprime mortgage melt-down is news of a possible economic recession, both in the United States and abroad. In true election year fever, politicians from both parties have taken this as their opportunity for governmental intervention into the economy. Some suggest a tax-rebate that will “stimulate” the economy, while others have seized the opportunity to increase entitlements. Finally, in a benevolent non-partisan act, taxpayers earning between $3,000 and $150,000 will receive a tax rebate worth $600 to $1,200, depending on their income.: Serious policy discussions must take place before true economic stability can come to fruition.
The underlying problem is that governmental interference into the market coupled with poor choices by consumers will keep us in a never ending game of peaks and valleys. While voters may find it less appealing than government handouts, the best stimulus plan for a sick economy does not involve rebates or entitlements.
The remedy begins with consumers taking a big gulp of ill flavored economic medicine. Granted, a portion of the blame for the Subprime mortgage meltdown does belong on the lending companies. It was irresponsible for them to loan out the money in the fashion in which they did, and it was more irresponsible for them to invest in risky hedge funds. However, the final responsibility will always fall on the homeowners. Borrowing more money than a house is worth is never a good idea. Coupling that with a plan that is dependant on the housing boom continuing will fail more often than not.
Consumers drive our economy so changing consumer spending habits will be no easy feat. Instead, the most important sacrifice should fall upon the lawmakers. While criticizing a Republican Administration is never fun, it is now justified. The current liberal fiscal policy played a role in our current predicament. We must learn from Reaganomics that the only way to control a government bent on spending at ease is to cut its income. Making the Bush tax cuts permanent is a necessary first step. It will relieve some of the financial burden that plagues our people. This should be followed by the repeal of the Alternative Minimum Tax (AMT). In December of 2007 the AMT was indexed for inflation and extended another year. This leaves us in the position of having to battle the Subprime crisis, the transition of administrations, and higher taxes for some Americans all at the same time.
The United States can prevent this from happening again. She must use the current economic downturn to her advantage and change the tax system that stifles growth and discourages saving Governmental interference and over taxation not only contributes to business cycles, but it gives the Federal government the chance force citizens to rely on it more. The economic remedy may burn on the way down, but it is exactly what the doctor ordered.