Boring but maybe important: Barack Obama has proposed one element from the economic recovery plan that I published in November 2008: allowing businesses more flexibility in capital expense depreciation (nytimes story). Note that this doesn’t change the amount of the deduction that is allowed, just when the deduction is taken. Fewer businesses will have to face the risk of owing a significant tax to the federal government in a year when their operations are cashflow-negative. This is especially important in the U.S. because we have among the highest corporate tax rates in the developed world (Forbes says that we are at about 40 percent state/federal and Europe is at 23.5 percent).
[Consistent with the U.S. plan to cheat its way to prosperity and with the idea that the Collapse of 2008 was not indicative of any structural problems, Obama suggests that this change in the tax code apply only in 2011. After that, things go back to the way they were and somehow the economy is not supposed to go back to the way it was. The change therefore may make the U.S. less efficient economically, since companies may buy stuff in 2011 that they wouldn’t have needed until 2012 or 2013. Lawyers and accountants will benefit, as they do any time there is a change in the law.]
Phil, while the policy proposals you have written in your economic recovery plan are sound, it’s difficult to imagine that politicians would actually implement them. As you have noted under the section “Unconventional Ideas”, it’s not compelling for “here-today-gone-tomorrow” politicians to implement policies that would incur heavy political costs, while the benefits of the policies are distant, abstract, and could be claimed by anyone for credit.
It might be helpful to figure out not only what policies have to be implemented, but how the political elite could be given incentives to actually implement those policies. Maybe things will eventually get bad enough that politicians will be forced to act, but hopefully, we won’t have to reach that point, before the masses start building guillotines again.
Bob: Politicians in the U.S. are superb at getting reelected. They have few additional skills and, probably, few additional motives. I guess that is what you should expect with 310 million people and intense competition for the 1000 or so top jobs in the country. A person who diverted energy into developing skills in some area other than getting reelected would lose an election to someone who had devoted 100 percent of his or her efforts to being electable.
The U.S. political system, with divided responsibility between Congress and the White House, has not been copied by any other country. It doesn’t seem to be a good system when painful choices have to be made. The parliamentary system, used by most democracies worldwide, has proven far more adaptable to crises. Sweden, for example, was able to scale back its welfare state in the 1990s after a period of economic decline (see http://www.newgeography.com/content/00814-swedens-taxes-the-hidden-costs-the-welfare-state for how taxes as a percentage of GDP have declined in Sweden). The United Kingdom, right now, is dramatically cutting spending in ways that would be unthinkable in the U.S. (they’re going to cut government spending by roughly 8 percent of GDP; in the U.S. that would be $1.1 trillion in spending cuts, equivalent to eliminating the military ($660 billion) and Medicare ($530 billion)). The UK Prime Minister has taken to flying on commercial airlines rather than chartering massive private jets. See http://www.bloomberg.com/news/2010-06-22/osborne-says-he-aims-to-eliminate-u-k-structural-budget-deficit-by-2015.html for what they’re up to.
So I wouldn’t expect big changes in the U.S. nor guillotines. Our politicians will do whatever it takes to make us love them enough to reelect them!