Thursday, September 25, 2008

What to do instead

I made the case a couple of days ago that we should not use taxpayer money to nationalize the failing finance companies, and in spite of the fact that President Bush and both candidates for President support that $700 billion bailout, I remain convinced that it would be a huge mistake.

This is a government-created crisis, and turning to government to prop up the corrupt government-chartered structure is just more of the wrong-headed thinking that got us here in the first place. So what should we do?

The Republican Study Committee has a proposal which is worthy of consideration from those of us who believe in free markets rather than government control as the most effective way to build and grow a sound economy. It is rare to find someone in Congress who gets it, so I want to give credit to the few remaining conservatives. This letter from the RSC to the Bush Administration nails the case against the huge power grab.

The RSC outlines a pro-growth agenda to get the economy moving by getting government out of the way, instead of simply throwing our money at the problem. Here are the major points of their plan:

1. Give the capital-gains tax a two-year vacation. “Suspending capital gains taxes would bring as much as a trillion dollars of capital sitting on the sidelines back into the market,” Hensarling predicts. Also, as the Tax Foundation proposes, cutting America’s 35-percent corporate tax — the industrialized world’s second highest, after Japan’s — would boost U.S. global competitiveness. Since equity prices partially reflect long-term after-tax profits, lowering corporate levies should buoy stock markets.

2. Denationalize, then privatize Fannie and Freddie. “These troubled financial Frankensteins — created in a government laboratory — are not creatures of the free enterprise system,” Hensarling said. “We must ultimately take their monopoly powers away and return them to the marketplace” by auctioning off their loans.

3. Waive “mark-to-market” accounting. As the Competitive Enterprise Institute’s John Berlau argues, when distressed mortgage-backed securities sell at bargain-basement prices, unhelpful new bookkeeping regulations require that similar instruments elsewhere — including viable loans — be valued at equally low prices. This needlessly stains balance sheets.

4. Strengthen the dollar. Bernanke should boost U.S. currency, not pose as America’s uber-stock broker. A strong dollar lowers inflation, cheapens oil, and soothes world markets.

Let the White House and your Congresscritter know that you support the RSC position.

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