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September 15th 2008

It's about Oil, and confidence...

The two biggest factors determining the future of the economy are the price of oil, and consumer confidence.
The price of oil will continue to have a negative effect, even if it continues a slow slide to seventy or eighty dollars a barrel. And if consumer confidence stays low, spending will stay slow. The psychological impact of a panic or recession is under rated. Even if housing prices stabilize, if oil stays high, and spending stays low, individuals won't buy things, and business will suffer, further aggravating the decline.

Could Sarah Palin change the dynamic on oil?
Yes. Palin is from Alaska, knows the north slope and knows ANWR. McCain has already shifted position on off shore drilling. If Alaska is opened up, we will see further downward pressure on oil prices. Oil is unlike any other commodity. When the price of oil goes up, everything else goes up. When the price at the pump is high, people have less money in their pockets..

How can the economy be fixed?
Drilling for oil in one or two locations won't do the trick. We need a complete shift in the way oil exploration is approached. In World War II, the United States ramped up production to incredible levels building airplanes, tanks and ships in record time. If we can tap oil reserves in months, instead of years, we can lower the price of oil quickly and jump start the economy. All increases in supply put downward pressure on prices, this is not theory it is fact that has held true for hundreds of years.

The single biggest factor that is overlooked when analyzing the cause of the great depression is the psychological impact on business. With changes and new regulations rolling out of congress on quarterly basis, businessmen and investors were hesitant to invest. This not only slowed productivity, it caused unemployment to rise even further as companies didn't need labor to build new initiatives. Congress and the president must work together to stifle new taxes on capital, and business, stop all new regulations, and de-regulate areas not directly connected to public safety. Now is the time to put environmental issues on hold for a few years. These issues are important, but not as important as food and shelter for your family. Small business owners need to write, and telephone their congressional representatives today.

The solutions are simple, and time tested.

1. Liquidate the bad debt. Propping up dead dogs is nice window dressing I suppose, but does nothing for the underlying economy.

2. De-regulate everything related to the economy that doesn't impact health and safety today.

3. Cut government spending. Even social security payments must be cut by 2.5%, and frozen next year.

4. Get oil companies drilling today. Lower oil prices lower all prices, and new exploration will create jobs.

5. Call for a two year moratorium on new legislation that increases regulations on business, and the environment.

6. Overturn the family leave act, Overturn the ADA, and drastically lower EPA requirements. These things can be ramped back up in a couple of years. RIght now, they are too expensive and a drain on the economy.

7. Don't fall to the immigrant backlash that is surely coming. Illegal immigration reform will be the Smoot Hawley of the twenty first century. These people are proving low skill labor at low rates. Smoot Hawley protected low cost goods, that should have required low cost labor, with higher cost labor, thus furthering the depression. The parallels are shocking. If you start kicking out the illegal workers, prices will sky rocket, the jobs will be filled by Americans making minimum wage, and then the jobs will go away along with low cost food and other staples.

8. Cut the capital gains tax rate to 5% and make it permanent for at least ten years. Capital is the antidote to economic depression.

9. Eliminate the corporate tax. This tax has never existed anyway. It's simply a tax on the consumer as it is always passed down the chain.

10 . De-index all minimum wage laws from the inflation rate. Lower the minimum wage at the federal level, and encourage states to do the same. Hoover pressured businesses to keep wages high, but prices were falling. This caused hiring to come to a standstill, and it will happen again.

These are not difficult changes to implement, and they will lead to a stabilization in the economy followed by growth. The housing crisis was the virus banking needed to become stronger in the future. Each of the ten things complements the other. We will avoid a prolonged recession, avoid a depression and set the footing for a sound recovery.

Alas, politics will intrude and none of this will happen. So a severe recession is almost a certainty for 2009. By 2010 I think the people will realize that we need more intelligent politicians from both sides of the aisle.

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The summary:
We are not facing the end of the economy. Not all big problems are complex, and this is the case today. Prudence is the watchword on taxes and regulation, aggressiveness is needed for oil exploitation. The quickest way out of hard economic times is not easy money, it's higher productivity.

A warning!!!
Politicians today are not the best and brightest the country has to offer. These people are not experienced in looking at complex issues and solving them with well thought out, simple approaches. Too often they listen to advisors from academia, and inside the government. The solutions to our problems today will come from people who can solve technical and organizational issues. Barriers to solutions will come not from business, or citizens, but from government itself. Beware those who advocate increasing the money supply, it won't work.

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