Tuesday, March 18, 2008

Is Government Responsible for Recessions?

People are starting to ask if government should be held responsible for recessions (or if they are simply an inevitable part of the nature of capitalism).

Well, "capitalism" is a very vague and inclusive term, so even if the people insist on preserving capitalism, that still gives any particular set of politicians a lot of room for initiative.

But let's leave that and ask a counter-question:

What might an administration that wanted to avoid recession

A recession is the technical term for "The Party's Over!" You had a great time, but now you need to pay the piper. Now that you understand, you can explain to your local government representative.

So, here are a few steps that a government concerned about avoiding recession might take:

1. Call on the people to cut back on frivolous expenses.
2. Tell the people to accept the reality that they can't live quite so high on the hog as before.
3. Structure taxes to support #1 & #2 by, e.g., eliminating deductions to buy SUVs and vacation homes.
4. Since oil mostly comes from overseas, institute a carbon tax to persuade folks to stop wasting plus a flat rebate financed by part of the carbon tax to ensure that everyone has a fair minimum amount of gas and heating fuel at a lower price. One way to do the carbon tax would be to penalize heavy consumption (e.g., by penalties for inefficient cars or large houses).
5. Reform the banking system & tax systems to encourage high rates of savings. When industry is the backbone of the nation's strength and industry requires investment funds derived from everyone's personal bank savings, why on earth would the government want to tax interest on savings accounts? Interest on savings should be as high as possible to encourage saving.

I'm just guessing, of course, but I bet other points could be added to this list. Have any ideas?

1 comment:

Nicholas said...

These are great ideas, and not just in times of recession!

I've always thought that recessions were a cyclical process - there's no way to get out of them all the time. I think the best thing an administration can do is to encourage a diverse economy, and keep an eye on things to make sure it doesn't get too out of control. If the US gov. had reigned in mortgage lenders a year ago, we'd probably be much better off.