- The Washington Times - Sunday, January 4, 2009


Many elements of today’s financial crisis remain opaque. It is crystal-clear, however, that numerous practices that created this fiasco still are in place, as are many of its main culprits.

A few weeks ago, Rep. Barney Frank, Massachusetts Democrat, said he expected 2009 to be the “best year” for public policy since the New Deal. When it comes to government, Mr. Frank believes bigger is better.

Mr. Frank lambasts “Wall Street greed” for spawning this economic havoc, but Americans should be furious at his obliviousness to government greed, his own role in public avarice, and its contribution to this disaster.

While Mr. Frank is grossly negligent, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson may be simply negligent. On Dec. 30, the Treasury announced $6 billion in relief for GMAC, GM’s finance division - atop the $17.4 billion in Troubled Asset Relief Program (TARP) funds already earmarked for Detroit.

Both Mr. Bernanke and Mr. Paulson also want to commit more taxpayer dollars to halt falling home prices (despite Washington’s endless worship at the altar of “affordable housing”). Treasury is considering the purchase of Fannie Mae and Freddie Mac’s securities. This would dedicate taxpayer funds to guarantee home-mortgage payments, thereby encouraging banks to lower their mortgage-interest rates, thereby stimulating the home-borrowing market, thus causing more people to buy homes, and, finally, driving up housing prices. Doesn’t this logic sound oddly familiar?

So now, to address an economic emergency rooted in a housing bubble caused by easy credit, irresponsible lending and borrowing and implicit government involvement in the mortgage market, Washington experts prescribe artificially low mortgage rates that artificially will boost home prices and increase the government’s explicit involvement in the housing industry. What is happening here?

In addition to a central-bank monetary policy that entices borrowing and spending due to record-low interest rates, the incoming Obama administration plans to ramp up demand through a spend-early, spend-often fiscal policy that will increase inflation as deficits soar. Mr. Obama expects his spending program to create some 2 million jobs to build new infrastructure, although some on the left consider his proposal insufficient. They fret that people with no skills will miss the benefits of new job creation.

Also among his neo-New Deal proposals, Mr. Obama hopes to “repair broken schools and make them energy efficient.” At last, someone understands that what has broken America’s government schools is not an abundance of bad teachers shielded by over-protective teachers’ unions, but a scarcity of fuel-efficient classrooms.

All kidding aside, the economy resembles a sedan that just slammed into a sycamore. It is possible to escape this wreck, but like joining Alcoholics Anonymous, the first step is to acknowledge how we got here. America got wasted on too much credit, too much spending and too many taxpayer dollars.

Alas, those who enjoy the nonstop happy hour that is Washington, D.C., want to keep the sauce flowing. To admit otherwise might encourage taxpayers to demand that those at this endless bacchanal put down their glasses, start drinking ice water, and ask their designated drivers to chauffeur them home.

The clearest road away from this financial wreckage involves incentives for Americans to create self-reliant, private-sector businesses, jobs and wealth.

What America needs immediately is a tax cut for everyone, including our wealthiest citizens. Reforming the tax code would provide instant relief. This should include raising the maximum deduction for annual capital losses above today’s $3,000 threshold. Help also should include accelerated (or even voluntary) capital depreciation schedules to encourage businesses to make capital investments and deduct them at whatever speeds satisfy them, not Washington taxocrats.

Also, corporate taxes should be slashed, perhaps to zero in the short-term. In lieu of October’s $700 billion bailout that blasted the door off the Treasury’s vault, Washington could have spent just $641 billion and canceled the corporate tax for all of 2009 and 2010. Had that occurred, American businesses now might be busy figuring out how to expand, rather than shutting the storm windows against the growing financial tempest.

Government’s power to spend is the power to shift costs, mortgage the future, depress the dollar and accelerate inflation. It is, at best, a temporary fix, not a permanent panacea. When will people learn that short-term spending sprees created this shambles, and will not correct it? Such Keynesian policies only postpone the day of reckoning until tomorrow, at the expense of America’s long-term economic health. Rather than lead us to salvation, Washington politicians are doing what they do best: kicking the can another 20 yards down the road.

Brett Joshpe, a lawyer in New York City, is co-author of the book, “Why You’re Wrong About the Right” (Simon & Schuster, Threshold, 2008). Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with Stanford University’s Hoover Institution.

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