So evidence increasingly points to a contraction in the economy: what does that mean for policymakers? Undoubtedly many will push new government spending initiatives, which would have dubious effects at best.
In today’s Wall Street Journal, Lawrence Lindsey offers some more constructive ideas. He focuses on the need to reduce regulatory barriers that are limiting what companies can offer consumer credit, but also highlights the need for the government to get the fundamentals right:
Longer term, fundamental tax reform remains the most sensible way of strengthening the American economy. The cumbersomeness of the current system, and the political inability to cope with it, reached truly embarrassing levels last year when Congress took more than 11 months to come up with an economically vital one-year patch to protect millions of taxpayers from liability to the Alternative Minimum Tax.
Our economic performance is increasingly being held to political ransom, as evidenced by the failure of the current Congress and the ad hoc nature of the so-called “stimulus” packages put together so far. The collateral damage caused by special-interest efforts like the anti-Wal-Mart campaign is further evidence that we are sliding in the wrong direction. While deregulation and tax simplification are not currently in vogue, ultimately they represent the best type of economic stimulus — by allowing the people who actually create the jobs and wealth of this country to get about their business.
The current economic troubles are just one more reason that the government should get its fiscal house in order: this begins with simplifying our tax code which is an unnecessary drag on the economy and ending the double taxation of savings. Entitlement reform should also be high on policymakers priority list since that is an economic crisis that we know is just around the corner, but I’m not holding my breath…