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Tuesday, November 27, 2012

The Unmentionable Solution

Justin Katz at the Ocean State Current discusses the unmentionable solution to the current debt crises--rolling back government laws and regulations that stifle economic activity. Katz argues:
When the Clinton administration took the wheel, a different debt became the fuel. Finance-industry deregulation allowed new instruments to capitalize the future mortgage payments of people who were unlikely to be able to make those payments. The government-sponsored Fannie Mae and Freddie Mac gave this speculative source of future wealth the security of government backing, and investors brought a corresponding amount of their own resources into the mix.

But less of the newly active money went to GDP and more to investment. When the gamble crashed in the late ’00s, government stimulus inflated the stock market back to its previous heights while productive activity effectively stagnated.

The lessons are, first, that there is more wealth in the economy than is presently counted in dollars and, second, that wealth and inflation are mobile within the economy. The solution to our current conundrum is to draw unused wealth and productivity into circulation and wean ourselves from government debt.

The closed-door negotiations concerning the cliff shouldn’t be an exchange of revenue chips for spending chips; it should be an exchange of fiscal relaxation for regulatory loosening and safety-net tightening. Raise the debt ceiling for a while, but with the conditions that neither taxes nor spending increase and that Americans are given opportunity and incentive to invest and to be economically productive by means of policy changes that aren’t typically part of this conversation.

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