In 2007, I made a YouTube video titled “Make-Believe Economy.” In that video, I predicted that a stock market crash and an economic downturn was in the making. I made that prediction on the basis of common sense. I was young and brash when I made that prediction in 2007, but it turned out to be correct. Today, I am issuing a new warning for the economy.
The events of today [Sept. 18, 2013] cause me to be gravely concerned for the future of America. Today marked a turning point for the United States economy. Today, the Federal Reserve announced that it would continue the practice of “quantitative easing,” despite having planned for more than six months to begin a reduction of the program. The stock market surged today on the news because it perpetuates an artificial inflation of investments, galvanizing short-term traders. Americans, by and large, will not recognize the enormity and the tragedy of what has occurred today.
What has happened is the U.S. government has unofficially surrendered and admitted that they have no viable plan for how to fix the economy. We may draw this conclusion from the fact that the government has employed every pro-growth economic policy in the book, and yet the standard of living for the common American has declined. The fact that the real median household income has steadily declined over the past five years is evidence that something is systemically wrong with our economy.
The Federal Reserve has never used “quantitative easing” in conjunction with a Federal Funds rate of nearly zero. I repeat: this combined technique has never been used before, and has been applied as a last-ditch effort to stimulate the economy. (I dare you to
look at a chart of America’s monetary base over the last 40 years.) It was the last and final idea that the government had, and now they are saying that even that was not enough.
In spite of the herculean efforts of the U.S. government, the fundamentals of our economy are about to turn downward. Specifically, we will see in the near future that the unemployment rate will increase, marking the failure of our fiscal and monetary policies. This will initiate a slow-moving collapse in confidence as the reality of our economic dysfunction becomes clear. The ills of Main Street will eventually infect Wall Street in the form of a broad-based decline in equities. I predict that this process will become evident within the next six to 12 months.
The problem at hand is that the government has no idea what is going on. The conservatives will blame the liberals and the liberals will blame the conservatives. Everyone will lose sight of the fact that the economic paradigms that have dominated the 20th century are simply insufficient to describe our current economy.
What should be done? What can be done? I will tell you:
(1) Stop attempting to stimulate employment indirectly because it is not
working. Our fiscal policy is only increasing the national debt and our monetary policy is putting the dollar at risk of significant devaluation.
(2) End the complexity of the corporate tax code because it hurts small-to-medium sized businesses. The code must be reduced to 200 pages or less. This will significantly increase corporate tax revenues.
(3) Start incentivizing employment directly through corporate tax credits. Credits should be directly proportional to the wages paid, up to a given limit per employee. For example, 10 percent of wages, up to a maximum credit of $5,000 per employee, per year.
(4) Adjust the nominal corporate tax rate so that expected tax revenues from corporations would be equal to what they were prior to implementing steps 2 and 3.
(5) Begin a national consumption tax (i.e. at 5 percent) for the purpose of supplementing revenues that would otherwise be garnered through the payroll tax. This must include a “prebate” function to ensure that the tax will not be regressive.
(6) Using step 5 to supplement tax revenues, slowly make the payroll tax extinct. It is the most regressive tax in our country and it is a direct tax on employment. It is the exact opposite of what we want right now.
(7) The national debt is a threat to national security. Once economic stability is achieved, lawmakers must make the hard decision of how to eradicate the national debt. The bipartisan Simpson-Bowles report will serve as an excellent starting point for this action.
This is a portrait of a real pro-jobs economy. I am tired of hearing politicians make false promises about job creation. It is not a time for empty talk; it is a time for real action. It’s time to put up or shut up. The economy is imploding in slow motion. New ideas must be considered. It is our choice: adapt or face the consequences of failing to adapt.
I choose to adapt.