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JakilaTheHun (99.94)

Nine Growth Policies to Improve the US Fiscal and Economic Health

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June 10, 2010 – Comments (24)

[Note:  This article will be posted to my Upward Society Blog in the upcoming days, but I decided to post the text-only version here first.]

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"Nine Growth Policies to Improve US Fiscal and Economic Health"

Sovereign default!  Zimbabwe!  Weimar Germany!  Hyperinflation! 

I have seen way too much of the above terms in the past two years.  There is a growing belief that the US is on an unsustainable fiscal path and the only end result that can possibly occur is Zimbabwe-like hyperinflation.  Not only is this wrong, but it’s so wrong, that we’ll look back on it in 20 years and view it in the same vein as the apocalyptic predictions on Y2K.    

Don’t get me wrong --- the US does have too large of a debt-load relative to its GDP.  Moreover, the US government desperately needs to reduce defense and entitlement spending.  I’d even go so far as advocating phasing out Social Security.  These sorts of spending cuts would help balance the US budget and lower our long-term liabilities, but people are ignoring an even better way to lower our debt load:

GROWTH!

And while growth is technically a 6-letter word, you’d think it only had 4 letters given the political aversion to mentioning it.  People too often forget that if you lower the deficit, but GDP growth falls, debt-to-GDP could still be rising.   On the other hand, if the deficit stays flat, while GDP improves, then debt-to-GDP is falling. 

Right now, more than anything, the American public needs to focus on growth.  Yet, I’ve seen very few realistic ideas on how to achieve it thrown around.  In fact, I see more and more political policies discussed that have the potential to decrease long-term GDP growth. 

So here are 9 policy ideas that would allow the US to increase long-term growth potential.  Some might be controversial, but they would achieve the ultimate objective of sustainable growth:

(1) Legalize, regulate, and tax marijuana ---

This might seem like an odd idea on how to achieve growth, but it makes a whole lot of sense when you understand the economics behind marijuana prohibition.  By making marijuana illegal in the United States, we’ve essentially created an entire underground economy for it, just as we did with alcohol after the passage of the 18th Amendment

Think of all the consequences of this marijuana criminalization:

(a) Government revenues are decreased because no income is generated for taxation purposes;

(b) Government expenditures are increased because more law enforcement is needed to enforce the laws and more prisons must be created and maintained to house prisoners.  Prisoners generate very little real income and become government-dependents.  Moreover, being a prisoner limits one’s future income-earning potential;

(c) Crime is increased, which drags down the economic health of neighborhoods associated with the drug trade;

(d) Potential government revenue is destroyed, because the government can not tax marijuana in the same way it taxes cigarette or alcohol sales;

Even after all these negative economic currents, the problem is still not solved.  While cigarette usage has declined dramatically over the past few decades in the U.S., there is no similar decline in drug usage. 

In general, the “Drug War” is an extremely unprofitable activity for the US government and it harms potential GDP, without actually addressing any of the underlying problems behind drug usage.  Legalizing, regulating, and taxing marijuana would be a great first step to solving our problems and it would dramatically reduce the burden on taxpayers.  Call it the “low-hanging fruit”, if you will.

There is already a bill in California legislature to legalize marijuana and it is estimated that this action will boost state revenues by $1.3 billion per year and possibly reduce costs by as much as $1 billion.  That’s not a bad return on investment for an act that would basically harm us in no way and would change very little, other than to move one cash crop from the underground economy back to the mainstream economy. 

 

(2) Build a high-speed rail network; allow private companies to bid on rights ---

We’ve heard a lot of talk in recent years about the importance of high-speed rail and how America has fallen behind on this.  Even China seems to be worlds ahead of the US, when it comes to building a high speed rail network.  Why aren’t we doing more? 

The answer to that question is complicated.  To build a high-speed rail network, the US and state governments will probably have to become involved.  This isn’t like developing a major medical technology or advances in computing --- you have to deal with politicians, who endlessly bicker over just about everything and don’t like handing out funds. 

The private sector is much better at innovation, but the private passenger rail in America was destroyed from about the 1920s to the 1970s by extremely flawed public policies (including over-taxation).  Moreover, the private sector now lacks the resources to obtain the land necessary to build a national or even statewide high-speed rail network. 

So what’s left?  The best solution would be for the US Federal government or various state governments to start a process of consulting with business leaders, developing a blueprint, acquire the land necessary, and start building the tracks.  Then, the rights to the tracks are merely leased out to passenger rail companies that would be able to bid on the rights.  The US government could also sell off Amtrak, while it’s at it. 

This would create a recurring governmental revenue source (i.e. rent), while allowing our transportation system to be dramatically improved.  Transportation is the key to a well-functioning economy and much of America’s current prosperity goes back to the Eisenhower Administration’s decision to create a national interstate highway network.  Building a high-speed rail network would expand American travel options and improve growth over the long-haul, especially as oil prices continue to rise.  If done right, it also creates a revenue source for the government. 

 

(3) Stop raising taxes ---

Many people might tell you that John Maynard Keynes would support increased government spending right now.  This is possible, but simplifying Keynes in this manner overlooks a lot of his economic views.  It is likely that Keynes would believe that increasing aggregate demand right now is important. 

Increasing aggregate demand could be achieved through higher government spending, but it could also be achieved via lower taxes.  Given that our economy has become centered around increasing innovation and the government sector is very ill-equipped to create this type of growth, the latter plan (lowering taxes) seems to make vastly more sense to me than the former. 

At the very least, we should realize that increasing spending and increasing taxes achieves no net positive gain, since we are simply shifting production over to the government sector and taxing people at higher levels to sustain it.  As more capital is shifted out of the private sector’s hands, less capital will be available to fund start-ups.  This means less innovation in the American economy.  That will result in lower GDP and lesser efficiency in the long-term since the government tends to be less efficient than the private sector, particularly when it comes to innovation. 

 

(4) Eliminate oil industry subsidies ---

Too often overlooked in America’s energy woes is the fact that the oil industry is heavily subsidized.  You can see this in the $10 million liability cap for offshore drilling, which is incredulous on many levels with the current fiasco in the Gulf.  Not only do these subsidies cost the US government significantly in the long-run, they also decrease economic efficiency and help deter more innovative solutions from emerging.  It’s true that eliminating subsidies will increase price-tags for consumers, but it’s not as if we’re not paying the costs anyway; they simply shift over to our taxes. 

 

(5) Repeal Section 404 of Sarbanes-Oxley ---

Personally, I have mixed views on Sarbanes-Oxley.  Some would say it’s a disaster.  Some say it’s a big success that has been absolutely vital.  I’m in between.  I can see how it has helped create more accountability and transparency; it has also been very beneficial to investors.  At the same time, it has significantly increased costs for many smaller companies and created huge hurdles to becoming publicly-traded.  This results in higher capital costs.  This reduces innovation and lowers long-term GDP. 

There is one provision of  Sarbox (as it’s called by us accountants) that absolutely needs to be thrown out the window --- Section 404.  Section 404 requires companies to hire an external auditor to determine the adequacy of internal controls.  This practice does yield useful information for investors, but it comes at an extremely heavy cost to small companies. 

It would be more beneficial to either outright repeal Section 404, or to permanently change the requirements of it, so that it only applies to large-cap companies, where the fixed cost of conducting such a review does not significantly diminish profitability.  

 

(6) Find ways to reduce or eliminate big-city income taxes ---

If there’s one thing that drives me crazy, it’s high big-city income taxes.  You can find them in places like New York City, Philadelphia, and Washington DC.  DC was even debating increasing those taxes very recently. My reasons for disliking these high taxes are a bit different from most, however. 

High inner-city taxes drive people out of the cities and into the suburbs.  This creates more sprawl, which reduces economic efficiency.  Moreover, it requires more oil, more energy, and more overall pollution to sustain the resulting demographic shift. 

While big cities might perceive these high income taxes as being in their best interests, in reality, it’s just the opposite.  By driving out the wealthiest people from the city, they are decreasing their overall tax base.  Moreover, they are preventing further development that would increase the population and thus, increase city revenues. 

As an example, last Saturday, I was walking around in Washington DC near the Washington Convention Center.  This is a beautiful area that should theoretically be a prime spot for development.  And yet, I see this urban blight right in front of me.   Eventually, some developer will come along and build there, but imagine how much more quickly this process would occur if DC had a 5.75% income tax rather than an 8.5% income tax.  That would put it on par with nearby northern Virginia and Maryland. 

You might think a 2% - 3% tax difference isn’t a huge deal --- and it might not be if you make $20,000.  In that case, you are probably exempt from paying income taxes on a certain amount of income and you might pay $200 - $300 more on the rest of it.  The benefits of being in the city would probably outweigh the higher taxes.  That math radically changes if you make $1 million per year and you’re paying $20,000 - $30,000 per year for the luxury of living in the city.  You could pay someone a salary with that kind of dough!

Washington DC is one of the highest in-demand population centers in the nation --- the fact that so much of its theoretically prime real estate is still in the dumps is a testament to the negative affects of high city/state taxation.  If anything, DC should be thinking of every way possible to lower their tax burden and attract businesses and people into Anacostia and other economically depressed areas.  Other cities should be doing the same.  Cut costs, lower income taxes, and reap the rewards of a wealthier and more sizable tax base. 

 

(7) Create expanded mass transit networks; allow private companies to bid on rights

Déjà vu!  This sounds exactly like #2 and indeed, it is very similar.  I’ve been on the fence as to whether public or privately managed mass transit would be more efficient.  The more I see inter-state struggles as I do here in the DC Metro area (between DC, VA, and MD), the more I start to believe that mass transit would do much better if states simply built the infrastructure and then sold off the rights as a continual revenue source.  The states would have an incentive to do this since it would create revenue.  These mass transit companies could be regulated similarly to utilities --- moreover, unlike electric utilities, they would have competition, since we already have an extensive road network. 

My biggest problem with the nature of American public transit is that it seems like it’s almost impossible to find the necessary funds to pay for capital expenditures.  As a result, they end up extremely underdeveloped, with DC being a classic case.  Metro ridership is at record highs in spite of having the nation’s most exorbitant fees. 

 

(8) Don’t go overboard on banking reforms; they cut credit and lower GDP ---

As politicians desperately try to find ways to fix the problems that created our economic crisis, they seem to be overlooking the fact that they can easily exacerbate by the problems by going overboard.  The Institute of International Finance has concluded that proposed banking regulations could cut GDP by 3.1% in the US, Europe, and Japan. 

Regulators are proposing higher capital requirements in many cases.  While higher capital levels are undoubtedly needed by many banks, there might be better ways to deal with the problem.  A lot of problems in the US could be solved if FDIC is allowed to pursue disproportionately high bank fees for Too-Big-To-Fail (TBTF) institutions and those that take on excessive credit risk.  This will create a market mechanism that will help fix the problems, without undermining the basic structure of our commercial banking system. 

The FDIC is highly beneficial to Americans, as it has eliminated the former time-honored tradition of massive bank runs during a credit crisis.  But it does provide a public backstop to very large banks with excessive risk profiles, so the fee structure should reflect this more.  Either way, we should be careful to not start enacting hard-and-fast banking rules that dramatically curtail credit and lower GDP. 

 

(9) Redesign inner-city property tax schemes ---

I might sound like a broken record at this point, but a lot of our economic efficiency (and inner city woes) have been created by poor economic policies that ignore the realities of wealth.  The American cities were alive and well in the early 20th Century; many of them slowly withered in the latter half of the century, only to regain some steam in the 21st Century.  This trend probably would’ve occurred without poor public policies, but even if it did, it’s certainly been exacerbated by flawed policies.   

One problem I see with modern property taxation schemes is that they are based exclusively on property values.  This seems to create negative incentives for denser, upwards, inner-city developments.  After all, those developments create the highest property values.  Instead of recognizing that denser urban development creates economic efficiencies, decreases energy usage, and reduces overall pollution, we instead chose to punish those who pursue this sort of urban development. 

Perhaps we should be exploring different ways to tax inner-city properties.  We could tax based exclusively on land value (so any added-value is not punished).  Or perhaps we could continue taxing based on property values, but allow those who build multi-unit, multi-story, energy efficient developments to be taxed at a lower rate.  Regardless, it’s an issue that public policy wonks and urban planners need to start examining more closely. 

 

 

Don’t take my list as a dogmatic one.  Rather, my goal here is to redirect discussion on how to improve America’s fiscal and economic situation.  Raising taxes and eliminating government funding in vital areas isn’t the solution. This could only make the problem even worse, as it did in the Great Depression. 

There’s a much better case to be made for enacting growth policies, seeking out new sources of revenue, lowering taxes, and reducing or eliminating expenses associated with long-term entitlement programs.  Moreover, we should also be searching for ways to create a more sustainable long-term economic infrastructure, through green policies.  These nine policies I have recommended should help move towards these goals; but there are many other ways to improve our situation out there. 

24 Comments – Post Your Own

#1) On June 10, 2010 at 3:16 PM, portefeuille (99.60) wrote:

are you the author?

if you are, please change "Weimar Germany" to something else. The proper term is "Weimarer Republik", not sure what the "official" translation would be. "Weimar Germany" makes as much sense as "Paris, Texas" ...

http://de.wikipedia.org/wiki/Weimarer_Republik

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#2) On June 10, 2010 at 3:25 PM, russiangambit (29.31) wrote:

#1  -  there is Paris, texas, it is located near Dallas.

I think the  most common translation for Weimarer_Republik is Weimar Republic.

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#3) On June 10, 2010 at 3:31 PM, russiangambit (29.31) wrote:

Jakila, I agree. While so many people are concerned whether spend or not to spend fiat money the reality is the wealth and money are not the same thing. you can always print more money but create wealth one actually needs to do something productive. This is hard.And this is definitely not something that our government or monetary authorities can figure out. Our so-called economists these days mostly concentrate on issues of inflation and monetary policy and nobody talks about growth.

To promote growth first we need to save to accumulate capital. The government  could help by stopping the promotion of  unbridled consumerism and instead reducing tax burden and encouragining savings. 0% FED's rate is the eaxct opposite . FED is basically destroying whatever is left of the productive economy in order to save the banks with its misguided policies.

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#4) On June 10, 2010 at 3:32 PM, portefeuille (99.60) wrote:

I know that there is Paris, Texas. It just doesn't make sense to name a town in Germany if you want to refer to a period (the proper name stems from the "constitution of Weimar").

http://de.wikipedia.org/wiki/Weimarer_Verfassung

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#5) On June 10, 2010 at 3:36 PM, portefeuille (99.60) wrote:

You can leave it as it is of course, I am just slightly sick of seeing Germany mentioned almost every time someone wants to write something about "hyperinflation".

Germans are not in general "fearful of inflation" (most don't care) and that period was short and certainly not one of the "more important" periods of "German history".

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#6) On June 10, 2010 at 3:38 PM, portefeuille (99.60) wrote:

"more important" periods of "German history".

judging from what people usually think are "important periods" ...

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#7) On June 10, 2010 at 3:57 PM, chk999 (99.98) wrote:

Great list, but I have to argue with #2 and #7. Both could be uses of large amounts of capital with very poor or no returns at all. The obvious sort of example would be to spend billions to set up a subway system along a route that nobody wanted to use.  I think that mass transit has to be analyzed very carefully to figure out if usage would be economic or not before the decision to build it is made.

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#8) On June 10, 2010 at 4:12 PM, Melaschasm (55.97) wrote:

1.  Legalize and tax drugs - This makes economic sense, but I have seen drugs destroy so many lives that I am not comfortable championing the concept.

2.  High Speed Rail - Rather than having the government confiscate land to build a whole new high speed rail system, it would be much better to simply allow railroad companies to merge, close service to small unprofitable towns, and replace slow national rail lines with fast lines when and if it improves their profits.  While it may have made sense to break up the rail monopolies once upon a time, the current road system provides enough competition.

3.  I support tax cuts to spur growth because they have been successful when tried.  Look at JFK's tax cuts in the 60's and Reagan's in the 80's for a couple good examples.  I suspect that Keynes would favor spending increases, without increasing taxes, because of his silly belief in the multiplier effect of spending.

4.  Currently the oil companies pay some of the highest taxes per dollar of profit, even after the subsidies are subtracted from their tax bills.  Reducing the tax burden, while also reducing the subsidies would be a good idea.  Also, improving the quality of regulations, while reducing the quantity would help.

5.  I am closer the Sarbox being a disaster, but like most bad regulations, reform can improve them.

6.  Big City tax, spend, and regulate policies are a major reason why so many big cities are a disaster.  Detroit is perhaps the perfect example of such policies running amok.  As a single guy, I should be living downtown where I can walk to the bars, clubs, and sports arenas.  However, idiotic city policies means that I not only live out of the city, but I avoid downtown like the plague. 

7.  Mass transit - I totally disagree with you.  Every serious study I have seen shows that NYC is about the only place in the US where light rail can compete with busses as a source of public transportation.  While I would be okay with some subsidies for the busses to help the poor have better access to transportation, this is generally an area where the government policies should theoretically work, but in actual implimentation they tend to make things worse.

8.  I like the FDIC, but I think that the only financial institutions which should receive government support and bailouts are those which comply with the strictest rules regarding risk management.  In other words, only traditional post Great Depression style banks should be FDIC insured, and the rest should be allowed to go bankrupt if they get into trouble.

9.  Property taxes are a mess.  I don't agree with the fears about CO2, so this isn't a big deal for me.  However, if we do want to limit urban sprawl, for whatever reason, then there is a simple tax structure to deal with the problem.  Have a two part property tax system.  One part is based upon value, so that the rich pay more, the other part is based upon non farm square footage, so those using more resources (space and land) have to pay for what they are using.  I exclude farm land from the square footage tax, since that would just be a tax on food, not on urban sprawl.  This tax would need to be made by the state governments, since county and city governments could not effectively coordinate such a tax.

 

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#9) On June 10, 2010 at 9:29 PM, ElCid16 (97.27) wrote:

Great post, man.

Not only do I agree with #1, I also think that the we need to do away with "dry" counties and localities.  Half of Mississippi's counties are currently dry.  Per wikipedia's webpage, research has actually shown that traffic accidents caused by alcohol are higher in dry counties than wet counties.  People are going to drink, regardless.  When I was at Auburn for graduate school, my friends and I spent several summer weekends every year at a buddy's place on Smith Lake.  Instead of going to a nearby gas station to get beer, we had to waste a quarter tank of gas driving to the nearest wet county.

Overall, the US pulled in $5.6B in alcohol revenue in 2007.  I'm not sure about '08 or '09 numbers.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=399

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#10) On June 10, 2010 at 9:32 PM, Tastylunch (29.33) wrote:

>>GROWTH!

And while growth is technically a 6-letter word

So is Cancer!

 Sorry bad joke.couldn't resist. :)

>>Right now, more than anything, the American public needs to focus on growth.

aligned 100% . We definitely need to revive the private sector.

I agree with about all your ideas. I'd also throw in eliminate agricultural subsidies as well. Although you'd have to be gradual about it to give small farmers a chance to adjust. But that is an export we are naturally competitive in if we want to be.

I'd also argue that simplifying the tax code would go a long way to making everyone from the IRS to private enterprise a lot more productive as well.

issues 6 is a huge problem and possibly insoluble one. In my city (columbus) probably 50% of our tax reveue comes from income tax. The city is completely dependent on it.

One way around this is what Indianapolis did. They merged their county gov't with the city therefore you couldn't move the burbs as easily to avoid the tax. The ex-urbs still you could of course, but it cut down on their bleeding while reducing the amount of gov't personnel who really were performing duplicate functions.

Still it's a problem (like all avoidable taxes/fees are e.g. parking meters) and anyone who tells it isn't must not be a Portland Trailblazers fan.

in regards to 8. I say right away we need more regulators not more regulations. If we'd just enforce the laws we already have we'd likely be in decent shape. Its not like you need new laws to stop what the IB's did, most of it they had get approval to do. The SEC and equivalent agenices are badly understaffed for the functions they are required to do and the quality of their staff is very low compared to other gov't agenicies. this one of the things we've cut in gov't that we should not have.

Also there a couple key legal decision that make it very difficult for the SEC to prosecute anyone and those precedents will likely have to be reversed before they can effective at anything.

9 is  a definitely an idea that shoud be remotely be explored. here in Columbus we are hurt by our very low density. Our average cost per square mile to service eveything from fire to Police is pretty high despite our low cost of living.

So it's not just the environment, density allows for more efficient gov't as well.

 And then of course there is the public school issue. related to property tax, but man is that a  can of worms that I don't want to touch.

Melaschasm

I hear you on the drug thing, but you know, in my experience many users are sick/addicts not true criminals. But putting them in jail can often turn them into criminals, I've seen that happen to too many people. Once you get in the penal system it's very very hard to ever make an honest living again sending a lot of these guys into harder stuff and out of a chance for a decent life for good.

If we treat addicts for their addictions I think you'll see we will have saved money and the quality of their lives as well.

as far as the pushers go, there have been several studies I've seen that suggest entreprenuers and drug dealers have very similiar brains. Given the opportunity many of these guys may turn their energies towards tmore societally constructive activities. or at least less destructive ones. if nothing else it might cut down on the incentive for pushers to buy assault weapons.

I don't claim to have the asnwers, but I think it's safe to say that we are doing now with drugs is not working.

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#11) On June 11, 2010 at 7:48 AM, JakilaTheHun (99.94) wrote:

Our so-called economists these days mostly concentrate on issues of inflation and monetary policy and nobody talks about growth.

I don't think there's anything wrong with focusing on these issues, but I'd agree that they overly focus on them, and behaviorial economics behind growth are too often ignored.  You can't fix the problems with monetary and fiscal policy alone.  The US really only escaped the malaise of the '70s and '80s because of the tech boom --- which arguably only occurred due ot the accumulation of capital that resulted from major tax decreases.  

 

0% FED's rate is the eaxct opposite . FED is basically destroying whatever is left of the productive economy in order to save the banks with its misguided policies.

I somewhat agree.  My views on 0% Fed funds rate are mixed. 

On one hand, empirical evidence seems to suggest that too low interest rates (and too low inflation) create a situation where banks can make "easy money" and don't try to make "harder money" by lending out money to other businesses.   This doesn't actually create real growth and doesn't fix the underlying economic problems.  

On the other hand, our situation is so bad right now, that it's difficult to imagine shaking up the status quo and actually increasing rates.  

If I had my druthers, I'd probably increase the Fed funds rate to 0.5% by the end of 2010 and 1% by the end of 2011, just because I think it would allow continued QE, while eliminating the "easy money" dilemma.   In general, I'd rather the US adopt Korean-style inflation targeting, with more moderate interest rates --- strangely, Bernanke has, in the past, suggested that this method might be superior, but he hasn't come anywhere near adopting it in practice.  

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#12) On June 11, 2010 at 7:57 AM, JakilaTheHun (99.94) wrote:

Great list, but I have to argue with #2 and #7. Both could be uses of large amounts of capital with very poor or no returns at all.

If the government earned a 0% - 3% return on this, I'd argue the policy was successful.  The major reason to do it is because more mass transit and cleaner transportation options would allow continued growth of the economy and create more mobiility.  It's well-known that mass transit dramatically increases property values and this may very well reflect the underlying economic benefits.  

 

The obvious sort of example would be to spend billions to set up a subway system along a route that nobody wanted to use.  I think that mass transit has to be analyzed very carefully to figure out if usage would be economic or not before the decision to build it is made.

I agree with you on this, but I'd argue that this is already the case.  Most of these routes are debated, re-debated, and re-debated some more.  There are huge studies done to look at feasbility and potential usage.  I've looked at a few of them in regards to DC and Atlanta.  

Though, I'd argue that this might be less important than you might believe.  Think about the highway system.  Think about how many middle-of-nowhere places our highway system was built through.  

A lot of those middle-of-nowhere places are now major suburbs of big cities.  This is the thing about major transportation systems --- if you build them, the people will come eventually.  

Most of these systems are already built, but I'd argue they need to be expanded significantly.  Here in DC, demand outstrips supply dramatically and they are *CUTTING BACK*!!! That's absurd!  That flies in the face of everything we know about supply and demand and that's why I'm starting to come to the conclusion that the only way to make this work is to privatize some major element of it and create naturally self-regulating market mechanisms. 

If the routes are built, companies can bid on the leasing rights, and the value of those rights will increase over time.  This will create a constant revenue source for the government, while leaving in place a market mechanism for dealing with.  Passenger rail was killed before by fixed taxes --- bidding on leasing rights (as opposed to taxation) would solve that because if the value of the routes decreased, people would merely bid less.  It wouldn't destroy the system.  

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#13) On June 11, 2010 at 8:12 AM, JakilaTheHun (99.94) wrote:

1.  Legalize and tax drugs - This makes economic sense, but I have seen drugs destroy so many lives that I am not comfortable championing the concept.

This is actually one of the biggest reasons to legalize, regulate, and tax-the-hell out of drugs.  

Look at cigarettes vs. marijuana.  Cigarette usage has decreased dramatically.  Marijuana usage has increased.  Yet, marijuana is actually more harmful than cigarettes.  Smoking one marijuana joint is equivalent to 20 cigarettes.  

So why is marijuana usage increasing while cigarette usage is in decline?  It's simple ... because we've pushed marijuana to the black market.

Also, look at it this way ...

Drug dealers don't card minors.  Shopkeepers do. 

Marijuana tax revenues would increase the funds available for drug treatment and education, as well.  

 

2.  High Speed Rail - Rather than having the government confiscate land to build a whole new high speed rail system, it would be much better to simply allow railroad companies to merge, close service to small unprofitable towns, and replace slow national rail lines with fast lines when and if it improves their profits. 

There wouldn't be a need to 'confiscate large gobs of land'.  We could build high-speed rail systems on abandoned railroad lines *or* we could built at the same locations as our interstates (medians, shoulders, etc), so that new land needed is minimized.  

 

 

 

 

8.  I like the FDIC, but I think that the only financial institutions which should receive government support and bailouts are those which comply with the strictest rules regarding risk management.  In other words, only traditional post Great Depression style banks should be FDIC insured, and the rest should be allowed to go bankrupt if they get into trouble.

Moral considerations and reality are two different things.  I can say from a moral perspective that I don't think the government should 'bail out' large banks.  From an economic perspective, allowing Citi or Bank of America to fail simply is not feasible, because it would create a major depression that could last for a decade.  

So you either have to (a) find a way to decrease the size of the banks or (b) find a way to charge the big banks higher fees so that they are funding the costs of any future failure.  The FDIC fee scheme I've devised, I believe, would accomplish both of these.  It would create market incentives to go smaller, but keep higher fees in place so that the higher-risks of the TBTF institutions were reflected in their insurance fees. 

9.  Property taxes are a mess.  I don't agree with the fears about CO2, so this isn't a big deal for me.  However, if we do want to limit urban sprawl, for whatever reason, then there is a simple tax structure to deal with the problem.  Have a two part property tax system.  One part is based upon value, so that the rich pay more, the other part is based upon non farm square footage, so those using more resources (space and land) have to pay for what they are using.  I exclude farm land from the square footage tax, since that would just be a tax on food, not on urban sprawl.  This tax would need to be made by the state governments, since county and city governments could not effectively coordinate such a tax.

I actually agree with you on most of this; in fact, a lot of these ideas are already in my grand master work on this :)

My belief is that anyone who choses to leave their land wild (outside of a city) should be allowed to do so without paying any property taxes.  It's a public benefit, so no reason to punish them for it. 

Farms are different than urban property and should be taxed differently.  But at the same time, the property values for farms are already going to be significantly less than on urban properties, so I'm not sure they get significantly harmed by the current property tax schemes.  

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#14) On June 11, 2010 at 8:14 AM, JakilaTheHun (99.94) wrote:

Not only do I agree with #1, I also think that the we need to do away with "dry" counties and localities.  Half of Mississippi's counties are currently dry.  Per wikipedia's webpage, research has actually shown that traffic accidents caused by alcohol are higher in dry counties than wet counties.  People are going to drink, regardless. 

Admittedly, I never thought about this before, but you're right --- it probably does achieve very little benefit since people are simply more likely to drive drunk as a result of dry counties.  

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#15) On June 11, 2010 at 8:42 AM, JakilaTheHun (99.94) wrote:

I agree with about all your ideas. I'd also throw in eliminate agricultural subsidies as well.

Funny that you mention that, because I *almost* put that on this list.  But I felt like the list was getting long and unwieldy enough and I couldn't really connect 'elminating agricultural subsidies' to growth in any tangible way.  I do believe it would beneficial in the long-term, however.  

 

I'd also argue that simplifying the tax code would go a long way to making everyone from the IRS to private enterprise a lot more productive as well.

Damn!  I did mean to put that one on here, as I included it in one of my previous lists.  I'm glad you mentioned this; it will probably get thrown into my edited version for Seeking Alpha and my blog (I might start a new economics/policy blog actually).  

 

issues 6 is a huge problem and possibly insoluble one. In my city (columbus) probably 50% of our tax reveue comes from income tax. The city is completely dependent on it.

Yes, it's definitely not "low-hanging fruit" like the marijuana legalization and income tax simplicity.  It would be difficult to do because of dependence on it.  I'd say the best way to achieve it would be to set out a blueprint ---

(1) Slowly find other sources of revenue, such as sales taxes, parking meters, etc

(2) Slowly decrease the income tax rates over time

 

One way around this is what Indianapolis did. They merged their county gov't with the city therefore you couldn't move the burbs as easily to avoid the tax. The ex-urbs still you could of course, but it cut down on their bleeding while reducing the amount of gov't personnel who really were performing duplicate functions.

Actually, I've wanted to do a whole master work on how our jurisdictional system is nonsensical and that instead of our current states, we should have metro-states, so that entire metro areas would simply be governed by one authority (on top of the US government).  But it would be so difficult to achieve on a national level.  

I could see some larger states being able to pull it off somewhat.  California, Texas, North Carolina, Georgia, Virginia, Tennessee, Illinois, New Jersey, and maybe a few others could potentially do something along these lines.  

 

in regards to 8. I say right away we need more regulators not more regulations. If we'd just enforce the laws we already have we'd likely be in decent shape. Its not like you need new laws to stop what the IB's did, most of it they had get approval to do. The SEC and equivalent agenices are badly understaffed for the functions they are required to do and the quality of their staff is very low compared to other gov't agenicies. this one of the things we've cut in gov't that we should not have.

I agree.  I'm worried about the trend I'm seeing. 

We are:

(1) Increasing taxes

(2) Decreasing staff to Federal regulatory agencies

(3) Increasing entitlement spending. 

I think that's a big triple-whammy right there!  If there's anything we should be decreasing, it's the long-term entitlement spending.  We should be increasing Federal staff on regulatory agencies (which is actually useful and doesn't create a significant long-term drag on our economy) and we should be decreasing taxes.  

 

So it's not just the environment, density allows for more efficient gov't as well.

Most definitely.  This is another reason I support denser development.  Overall, it's more economically efficient from a variety of perspective.  It decreases energy, pollution, long-term tax burden, etc.  

 

 And then of course there is the public school issue. related to property tax, but man is that a  can of worms that I don't want to touch.

See ... I don't think this would be that big of an issue, because it's almost universally true in America that good public schools seem to lie where more wealthy people seem to reside.  

Wealth = good schools = more funding = higher standards

Why are DC schools terrible, but Fairfax County, VA schools some of the best in the nation?  Because DC has too many impoverished areas, whereas Fairfax County is wealthy.  

In inner-city Atlanta, school quality has dragged for years, but suddenly, the schools in Buckhead, one of Atlanta's wealthiest areas, are dramatically improving.  

I don't want to say it's "that simple", because there are obviously other elements, but wealth and good schools seem to go with one another a whole lot in the US. 

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#16) On June 11, 2010 at 11:06 AM, Teacherman1 (47.70) wrote:

If we phased out Social Security, where would the Govt. get the money they spend? There is nothing in there but a bunch of IOU's.

I got it. Let the Govt pay off those IOU's to pay those who are on it at their full rate, those who will be going on it at a pro-rated rate, and let those new to the world of "working" set up their own retirement accounts.

The problem here is that in the future, the Govt (read taxpayers) would still have to support a great many people who did not provide for themselves.

JMO and worth exactly what I am charging for it.

While I am a senior citizen, and entitled to collect S.S., I don't. 

Lot's of interesting ideas there Jakila. Maybe if we had a benevolent dictatorship, instead of a dysfunctional congress, some of them could even be implemented.

Have a great day. 

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#17) On June 11, 2010 at 11:23 AM, JakilaTheHun (99.94) wrote:

If we phased out Social Security, where would the Govt. get the money they spend? There is nothing in there but a bunch of IOU's.

Unfortunately, we'd probably have to raise income taxes in the short-run.  I don't like that, but I see it as a lesser evil than the SS taxes. 

I'd say you allow those who want to continue to pay into SS do so.  You are paid benefits on how long you paid in. (If you paid from ages 20 - 40, you'll get paid based on that.)

Not saying it would be an easy transition.  In fact, I think it would be a difficult one.  But I don't think it will be any easier to sustain the program given its horrible Ponzi-like design.  

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#18) On June 11, 2010 at 11:25 AM, JakilaTheHun (99.94) wrote:

I will say the great irony to Social Security is that it's only sustainable so long as more people continue to immigrate to America.  It falls apart once we stop that. 

Ponzi-schemes collapse when there are no new suckers to pay up.  Social Security collapses when population is steady or declining.  

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#19) On June 11, 2010 at 11:31 AM, outoffocus (23.14) wrote:

I'd say you allow those who want to continue to pay into SS do so.  You are paid benefits on how long you paid in. (If you paid from ages 20 - 40, you'll get paid based on that.)

Not saying it would be an easy transition.  In fact, I think it would be a difficult one.  But I don't think it will be any easier to sustain the program given its horrible Ponzi-like design.

Agreed. If I were offered the option today to divert my SS taxes into my 401k I would take it in a heartbeat. 7.5% of my income is a nice chunk of change to save every month.  At that point I would only be "entitled" (I don't like that word) to what I've paid in so far. If that runs out it runs out.  Its my responsibility to make sure I save enough for retirement.

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#20) On June 11, 2010 at 1:48 PM, AbstractMotion (55.15) wrote:

SS is going to be the hardest fix, there simply isn't money around for people to get out of it what they paid in without keeping the taxes in places.  I wouldn't mind seeing it phased out over the course of 15 years, if people want a public plan or some kind I have no problem with the government setting up some agency or GSE for that purpose.  Upping IRA and 401k contribution caps and allowing 15% of one's income to be put into those accounts pretax would solve allow for much better ROI (since the money is actually being invested).

 

JakilaTheHun:  I'd agree with it not being that simple.  DC has comparable per capita income to Fairfax County as a whole, but it also has much more pronounced regional disparities of wealth too.  In general the biggest thing that sticks out to me is that the poverty level is much, much lower in Fairfax County.  Fairfax County has some nicer areas, but I don't think it'd be easy to find the same kind of contrast in the county as you'd see between say Georgetown and SE DC.  Poverty and crime levels seem to be the key factors in the equation.  It's also worth noting that Marion Barry basically ran DC into the ground and the city council has basically obfuscated every attempt to address issues in the city.  Wealth and money make a difference, but there are some much deeper problems in DC in my opinion.

 

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#21) On June 11, 2010 at 2:28 PM, Tastylunch (29.33) wrote:

>>See ... I don't think this would be that big of an issue, because it's almost universally true in America that good public schools seem to lie where more wealthy people seem to reside

I'd say it's the very biggest one there is. People are so protective of their kids they get crazy irrational about it. Busing in particular has changed their very shape of Columbus. Good exclusive school districts have enormous property values as there is an an arms race practically to get into them and all sorts of city efforts to keep lower income people out.

The public schools in Ohio are mandated to provide everyone with a "fair" education. Nebulous standard to be sure, but in the 1990's our state supreme court determined that was impossible to achieve by funding it by property tax for as you said the inequity in quality due to the funding mechanism is very large. Thus we've been operating with an unconstitutional public school sytem for nearly 15 years.

And I do think the gulf is so wide  now that it's definitely a problem, in Cincinnati you still have a few schools in inner city that are powered coal furnaces from the late 1800's. But in rich suburbs of Cleveland you have schools with labs that rival small colleges.

The result is an extremely explosive issue to deal with in Ohio. Low income want change in this more than any other single issue and higher income want the status quo in this more than single income. It gets real volatile real quick at any discussion about it.

This is probably the single biggest deterrent to reurbaninzing. A huge % of people will not even consider moving into an urban area simply becasue they dont want their kids going to Urban public schools. And bringing in wealth does nothing to change this becasue Busing allows kids from any part of the city to go to any city school they want.

Ohio has also tried the Voucher program but it hasn't seemed like that has been very effective either.

Until we fix school system it will be impossible to reurbanize many cities. At best you can get YPs and retirees back, but you'll never attract middle income and above families.

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#22) On June 11, 2010 at 3:16 PM, russiangambit (29.31) wrote:

#21 - education is a fascinating topic for me, personally because I spent 17 years going throught the education system in various forms.

But I think US goes about it all wrong. The solution is not the money but focusing on the right things - teachers, parents and personal responsibility.

In Russia I imagine schools have even less funding than the poorest US school. My elementary school had conviniencies outside, with a hole in the ground -)).  But the education is much more of a priority for an average russian family than for an american, in my observation. A lot of americans are too concerned with school facilities and sport programs. Sport is not going to feed your kids but math and science will.

First, money is not going to solve the issue of bad education unless you show people the purpose. And that responsibility belongs to teachers and parents. In Russia often the motivation is to get into an exclusive school. Each city has several such schools specialized in certain areas - math, physics, foreign languages. Getting there ensures excellent education but the entrance is competitive.  Entrance in the colleges is also competetive. Both schools and colleges are free. I feel this approach is better because the academic  resources are spent on those that have potential to benefit the most. Kids who are not academic minded are "encouraged" to leave the school after the 8th grade and go into a trade school where they complete their 9-10 grade education on a simplified elvel and at the same time learn a trade.

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#23) On June 11, 2010 at 3:24 PM, russiangambit (29.31) wrote:

And one more thing on the education topic - cut the calsses in half, hire more teachers. Tehre is absolutely no excuse ofr such a rich country as a US  to have 30 kids in a class. Fire the coach instead or make the parents pay the coach out pocket, and the art teacher and the music/band teacher and the rest of extra-cirricular stuff shouldnt' be free.

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#24) On June 11, 2010 at 8:51 PM, Tastylunch (29.33) wrote:

 russiangambit

>>The solution is not the money but focusing on the right things - teachers, parents and personal responsibility.

While I don't think anyone can argue the virtue of teachers, parents and personal responsbility, I don't think money is unimportant. A public district that gets 1/8 th the funding of a wealthier one is going to have quality differences it just will.

 I don't think money is the solution per say as it is, as much as the source of the problem. Once a district gets poorly run it tends to stay that way as the money moves away. It's not the money itself per say as it is the sheer size gap between poor distircts and good. The good public schools in Ohio are pretty dang good, the bad ones are just horrendous.

I don't know how you fix that. I really don't.

>>But the education is much more of a priority for an average russian family than for an american,

I couldn't say as I know nothing about Russian schools so I'll trust your judgment. But I do think education does matter to Americans. At the very least I think it is the number factor in deciding where families choose to live in relation to their jobs.

I can't tell you how many people tell me they won't even consider property in Columbus city limits due to school system.

>>And one more thing on the education topic - cut the calsses in half, hire more teachers..... Sport is not going to feed your kids but math and science will.

You are going to need more money for that. Or at least serious reallocation. I completely agree academics should have higher priority, but sports is a big winner for districts in other respects, especially fund raising and passing tax increases.

It'd be interesting to see if sports are a net positive for them or not. I do know locally around here, school sports are usually used as a weapon by districts to get millage increases. E.g. "if you don't pass this tax hike we'll cut football" is usually how it goes.

>>In Russia often the motivation is to get into an exclusive school. .....I feel this approach is better because the academic  resources are spent on those that have potential to benefit the most. Kids who are not academic minded are "encouraged" to leave the school after the 8th grade and go into a trade school where they complete their 9-10 grade education on a simplified elvel and at the same time learn a trade.

I know zero about Russian schools, but it would be interesting to test this somehow to see if that system works better,

 

 

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