Sunday, February 15, 2009

How Obama could be the Greatest President Ever

A crisis is an opportunity for revolutionary change. Obama could become the greatest president ever, and fulfill the hopes he inspired, by making radical changes. He could put the economy on track to prosperity, reorient American foreign policy towards harmony, and refresh the American spirit of liberty.

The government could end the recession within three months with "money to the people." Congress would authorize the U.S. Treasury to print thousand-dollar bills, and give every U.S. resident six of them. That would be debt-free and would end the negative-feedback loop of higher unemployment creating ever less demand for goods, which then makes companies shut down and lay off workers. The recession creates economic lockjaw: banks fear to lend because companies are shutting down and workers are losing their jobs. Cash is the ultimate credit and the antidote to credit freeze. "Money to the people" is almost a free lunch, because the recession is causing deflation and fear of further price declines. Monetary expansion is bad medicine except in an economic depression with deflation, when it is a good tonic if given directly to the people, not to the risk-fearing banks.

For long-run prosperity, Obama should promote radical changes in taxation. Don’t tax the rich just because they have wealth. Instead, tax subsidies so that they are no longer subsidies. Polluters are subsidized if they do not pay the social cost of their emissions, so tax pollution. Landowners are subsidized from the increase in their rent and land value due to public works and civic services. Tax land value to eliminate this subsidy. A land value tax will make the economy more productive, as the land-value subsidy promotes inefficient uses of land and the excessive speculation that results in the boom-bust sequence we are suffering from now.

In foreign policy, Obama is confronted by the unsolved conflict over Palestine and the wars in Afghanistan and Iraq. Besides bringing home the US troops, Obama could promote a lasting democracy in Iraq by promoting an equal sharing of the oil profits, decentralized governance and voting, and protection for persecuted minorities. In Afghanistan, pay the farmers to grow alternatives to opium, and decentralize democracy to bring political power to the people.

Restore trade with Cuba. Stop promoting the war on drugs that is tearing Latin America apart with violence. Apologize for having overthrown the government of Iran in 1953. For the Arab-Israeli conflict, recognize an independent Palestinian state in which the Israeli settlers of the West Bank pay rent for the lands they hold. Most important, declare that American foreign policy will henceforth avoid interfering in the domestic affairs of other countries. Declare also that Americans are willing to talk to and negotiate with all adversaries.

Strengthen American freedom by promoting a constitutional liberty amendment: "Congress shall make no law restricting any peaceful and honest adult human action, not involving force or fraud, any state interest to the contrary notwithstanding." A first step would to be to legalize medical marijuana.

Obama has said he would confront the growing underfunded liabilities such as for Medicare and Social Security. A greater government takeover of medical services would compound the problem. The reason folks cannot afford medical care is because the money to pay for it has been take from them in the first place. Obama should separate the poverty problem from the medical problem. Make medical payments tax deductible, to unlock insurance from employment. Reform the legal system to having the loser in medical civil lawsuits pay all the legal costs. Then allow workers to opt out of medicare and provide their own medical care.

Obama could be truly great by getting welfare-state liberals to understand that state socialism cannot improve on the choice and productivity provided by a free market. Allow workers to switch from Social Security to individual accounts funded at first by U.S. Treasury bonds. That would replace the current Ponzi scheme with accounts that finance retirement from the worker’s own wages.

The global economy will recover from the Crash of 2008, but the massive bail outs and greater debt will cause problems far into the future. Where will the money come from for the coming trillion-dollar deficits? If it comes from money creation, the result will be inflation much worse than during the 1970s, and a global flight from the U.S. dollar.

There is a way out, but it requires the greatness of economic enlightenment. Establish sound money with free-market banking: stop the expansion of money by the Federal Reserve, and instead let banks issue private currency redeemable into Federal-Reserve-note money.

The US can reduce its trade deficit and borrowing from abroad with a radical tax shift that reduces the cost of exports, stops economic waste, and induces high economic growth. That is the tax shift described above. Stop taxing labor, goods, production, and investment. Instead, just remove all the subsidies, such as to pollution, to farmers, and to land holding.

Taxing land value and pollution, plus user fees, could provide sufficient revenue while eliminating the need to compensate people for denying them economic opportunity. That implies that there would be no more transfer payments: no more governmental payments for medical care and retirement. That cuts the budget in half while raising wages and reducing the cost of living.

These are the radical steps that could make Obama the greatest US president ever. If not, small change will be ineffective, hope will be lost, and America will continue on the path towards self-destruction. Can Americans make the revolutionary changes needed to avoid disaster? Obama has inspired many us with the answer. Yes we can! However pessimistic we feel, we can yet remain hopeful. That is the real audacity of hope.

3 Comments:

Blogger Behörde said...

$1.8trillion ($6000 times 300 million) in cash given directly to citizens would certainly not be cheaper than the Stimulus package. How did you arrive at this figure, and what evidence have you that it would help, and not lead to immediate devastating inflation of the price of just about everything? The Fed claims that there is only about $900 billion cash in circulation. Although we know the true money base is a bit higher in recent months.

You want to triple that instantly?

While no rational economist who understands the Fed's role in our current crisis could advocate continued monetary expansion to support deficit spending, this idea goes beyond even the Keynesians' craziness!

1:10 PM  
Blogger A.N. Guzman said...

Hey there Fred,

I have reviewed you geo-austrian theory of the cycle. I think it's only fair I let you know:

http://andystamadianos.blogspot.com/2009/03/notes-on-ect-22-foldvary-and-george-vs.html

Best wishes,

Andres Guzman

11:04 PM  
Blogger Fred Foldvary said...

Cash would not be cheaper than the government's stimulus package, but it would have an immediate effect, whereas the stimulus funds are being spent over several years, and thus have had relatively little real immediate stimulus. The inflation would reduce the real levels of debt.

7:45 AM  

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