Now that the bailout passed…what next?
Posted by sanityinjection on October 6, 2008
Free falling stock markets around the world today are a reminder that despite the federal bailout legislation, the economy is not going to rebound overnight. Having taken emergency measures to stave off a severe depression, what long-term steps should we be taking to improve the US economy?
Zachary Karabell has a piece up in the Wall Street Journal today arguing that America’s fundamental economic problem is its failure to adapt to a changing global economy in which we are no longer an economic superpower, but merely the greatest of a handful of powers. He cites enormous transfers of wealth out of the US and Europe to Asia and the Middle East over the last 5 years. The US imports goods and commodities at a furious rate but is not seeing that capital outflow reinvested in the US as it once would have been.
Karabell suggests two major changes that need to occur to put us on a sound long-term footing. The first is to achieve greater energy independence, so that we can stop sending trillions of dollars to OPEC and Russia. This of course has to involve a broad spectrum of energy investment, including offshore oil drilling and alternative energy sources. There is no reason why, in ten years, the majority of homes in the US cannot be heated by domestic natural gas, powered by a more diverse cocktail of sources including nuclear and wind energy, and have an electric car charging in the garage.
The second major change is to decrease the corporate tax rate, which is much higher than in Europe or Asia and creates a disincentive to operate businesses here (which means fewer jobs) and keep profits here. Karabell argues that arguments about the fairness of having corporations bear more of a share of the tax burden than middle-class working families are not wrong so much as obsolete, because the ability of companies to locate overseas makes it too easy to evade corporate taxation. Why have a high tax rate if it cannot be practically collected? Better to take a smaller piece of what will be a resultingly larger economic pie.
Article is here: http://online.wsj.com/article/SB122325757745406687.html