What Would I Do To Put The American Economy On The Right Course?

A Challenge in Comments

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Yesterday, I wrote about how ignorant both sides can be when it comes to economics. Glenn Reynolds of Instapundit fame linked today and in the comments, someone asked what I would do. The simple answer is to listen to the links I posted in the prior blog. I think the two conversations with John Cochrane are a place to start.

However, I think it is a fair criticism, or fair point, to ask someone who is critical what they would do. It’s easy to criticize, and hard to actually come up with workable real-world solutions to the problems you identified in your criticism.

One principle that I would follow is to have faith in people and the free market. Free markets are messy and they can take a bit to get the answer right, but they get it right. Anecdotal story time: I was a trader in a pit. There were hundreds of us bidding and offering and competing. We sought to differentiate ourselves in some way. Some of us traded bigger or smaller. Some made markets in exotic stuff and some just hammered away. I had a friend who was a massive trader that traded big butterfly spreads. He was dominant. Others competed with him, but he was the king.

One day, he decided to retire and move back to where he grew up. He started to unwind his position which took the better part of a year. He left.

I thought to myself, who is gonna fill that gap? It’s big. Order fillers relied on him. The answer was the very next opening bell, there were plenty of people stepping up to fill the gap.

Trust people. They are smarter than you think and free markets are the best way forward. You can’t have truly free markets with lots of constraints.

Where would I start?

For example, the government-run educational system in America is abysmal at best. As my friends at Wirepoints point out, it has just become a job and patronage system for the government and cronies.

So, clearly, it needs to be disrupted. Cory DeAngelis is trying to do that with a big school choice movement. Betsy DeVos as the Secretary of Education tried to do it. But, disrupting a unionized entrenched bureaucracy that lives off the government is hard.

We clearly need school choice. The next step is how. Personally, I have rudimentary ideas but it’s going to take someone like my friend Temp Keller to really put in place the structure that makes it possible. If I were a benevolent dictator, I’d ask Temp and people in sympatico with Temp’s perspective on privatizing the school system to put the structure in place so there is the least amount of turbulence in the transition.

We have been killing the futures of our children with government-run education, and if Covid taught you anything, you should know the teacher’s union is not on the side of the children or parents. They only care about their future.

In prior blogs, I have pointed out that roughly 70% of the Federal budget is already spent before any Representative or Senator gets to DC and takes their oath. Yesterday, I called out Trump for not cutting spending and the blowback I am getting is technical. “Spending originates in the House”. Yup, that’s true under the Constitution but the President puts out his own budget too and no President ever truly cuts spending and reforms programs.

If I were a benevolent dictator, I’d take a hatchet to the Federal budget. Not a scalpel. A hatchet. Parts of the budget would look like a riot went there and would be a neighborhood that wouldn’t ever come back.

Most Democrats point to defense spending because the numbers seem big. Billions for this and millions for this. That plane, tank, boat, missile costs blah blah blah and we could be building homeless shelters instead.

Defense is only 16% of the entire Federal budget, and if we don’t have it we all have the potential to live without shelter. The “peace dividend” of 1989 is long gone. The world is still a dangerous place and our enemies are at our doorstep. I am reading an interesting book The End of the World Is Just Beginning. I don’t agree with all of it but it does turn a lot of conventional logic on its head. I am also reading Winston Churchill’s “The Gathering Storm” and while history doesn’t repeat, it does rhyme. The reason it does is that man and his incentives never change.

Would I cut defense? No. I’d make sure that the Generals in charge had the right mission for the military. Their job is to keep us safe, and blow things up. Resources might be reallocated for the next fight and not the last one. Their mission is not to social engineer a new society. If the brass wasn’t on board, I’d fire them.

The Founders knew what a strong defense meant for freedom. Without it, you cannot be free and capitalism can’t survive.

That brings us to the really hard stuff.

A lot of the guaranteed spending in the budget is social security and the social safety net. I’d reform that. I would set up a way to transition off social security. We’d go from the existing program to a more private program. People would be better off and the government would have far less spending and it would help the deficit too.

I’d reform the social safety net big time. Right now, as Cochrane said, if you are on assistance and earn a dollar, you lose $1.10 in assistance. That’s wrong. I’d expand the EITC and I would ditch any ideas around universal basic income. UBI goes against human incentives.

I’d look at all the subsidies and my first inclination would be to ditch all of them no matter what industry they were in. Subsidies create bad economic incentives, and they pave the path for lobbying and crony capitalism.

I’d change the tax code big time. Corporate, dividend, and other business taxes would be 0%. I’d have a flat tax of 15% with no write-offs, except for churches and 501(c)(3) organizations. Do you make a million? Congrats, $150k is going to Uncle Sugar.

I’d separate health insurance from employment and I would rewrite all the regulations to allow insurance companies to compete across borders and innovate with all kinds of insurance. One size fits all with government mandates and government price ceilings and floors make it hyper-expensive, not competitive. I’d rewrite rules on where hospitals could be. I’d bring free choice to what practice a doctor could choose to be in. I would make the health industry hypercompetitive and innovative.

I’d rewrite the federal regulation registry to recognize costs and opportunity costs and stimulate competition/innovation instead of being written to advantage big corporations.

The bureaucracy would be trimmed down severely and I love the idea of decentralizing it. Putting the Department of Agriculture in Kansas where they are closer to America’s breadbasket is a good idea. Sticking the CFTC in Chicago isn’t a terrible idea. Maybe the regulatory agencies that oversee entertainment ought to be in LA or Las Vegas.

Again, the operational difficulty of all these sorts of ideas is pretty high. You’d really have to find some great people to work with you. That cadre would be selected on merit, not the way Biden and the Democratic Party did it.

This has to be done sooner rather than later. The world is changing quickly and there are going to be a lot tougher transitions and dislocations in the near future. Capitalistic societies will have an easier time navigating the bumps and tide changes than centrally planned societies.