I'm definitely no Chicken Little when it comes to the health of our economy, but there's no question that the size of my minority is shrinking. Officials of all stripes are now either calling for or weighing different stimulus packages designed to get the U.S. economy back on track.
Some facts: our economy is the largest and most diverse in the world. No economy is even remotely close to being on par with ours. The reason China can post such huge growth rates is because its economy used to pale beside ours. We've taken numerous hits over the years, from the 1970s oil embargoes to a major early 1990s housing slump like the current one to the fallout from 9/11 as it came upon the heels of a mild recession. We bounced back each time, frequently stronger than ever. We will this time, too, if we don't lose our heads.
More facts: the growth of our Gross Domestic Product in the third quarter of 2007 was an astounding 4.9 percent, following a strong 3.8 percent climb the previous quarter. A recession is defined as two straight quarters of GDP declines. There might be some people out there claiming that we're already in a recession, but we ain't close. Income growth has either matched or outpaced inflation.
Cut through the hysteria and you'll find that we have some challenges, but not serious problems.
1. Gasoline prices will probably hit the magic $4 per gallon mark this summer, which will hit the travel and leisure industry quite hard. On the other hand, it could increase the use of public transit and increase demand for fuel efficient vehicles, both things which experts believe are in the public interest.
2. Inflation has reared its ugly head quite separate from gas prices. But high fuel prices will make other prices higher, since it will cost more to transport goods from place to place.
3. While the Federal Reserve wants to cut interest rates to pump more money into the economy, propping up interest rates has been the main defense against inflation.
4. The housing market is in a definite slowdown and while some people expect it to bottom out this year, if it hasn't already, I'm doubtful. There's very little taking place in world events to make one think that people will want to move, and there's no question that fewer people will have the financial resources to buy a house for another couple years.
5. The mortgage meltdown has affected many companies and the stock market, and has been politicized to death.
6. Vast overspending -- in my opinion criminal in scope -- by our state and national legislators has led to terrible imbalances that have driven the value of the dollar to unheard of depths and placed our future in the hands of places like China and Saudi Arabia. California, which dumped former Gov. Gray Davis because he overspent boom money like it would come in that way forever, is back in the same position today under Gov. Schwarzenegger. The legislature never learned from the Internet bust that the housing bubble would burst, also.
Now our wise -- excuse me, cough, cough -- leaders are considering incentives to get the economy back in gear. Schwarzenegger is at least talking about spending cuts, though the government shouldn't have grown as fat as it did while chowing down on temporary income. The stupid stuff is talk about sending each taxpaying household a check for $500 or so. Now I have no problem with a gift 500 bucks, but this has been done before and the impact is very temporary on the economy as a whole. Pure political pandering in an election year.
Maybe an economic stimulus package is a good idea. That's a role of government, after all, to help move something along when a shove is needed. But it has to be smart, something that will work, something that will actually help the economy and all of us here at home. Something that addresses our fundamental problems.
President Bush at least brought up the price of oil when he was in the Middle East. My bet is that his push was too little, too late in his term. Plus, there's not much that can be changed about increasing worldwide demand, both for petroleum and other commodities.
The best thing we can do right now is to stem the tide of red ink flowing out of Washington, D.C., and our state capitals. The federal government has had record revenues slice down the deficits generated in the early 2000s. But we here in California can tell you that with these economic challenges, those revenues won't keep coming in at the same levels. Congress and the Bush administration will have to adjust.
The rest of it, from stocks to the housing market to corporate bottom lines, will improve over time. We'll also find out that things may not have been as bad as we thought.
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Look, I'm no economist, but I follow politics pretty well, and one thing I see happening in the next couple years is the end of the so-called Bush tax cuts. They're dead. And it may not be such a bad thing. Don't get me wrong, raising taxes during a time of economic uncertainty is not a good idea. And for the most part, increasing rates at any time is a bad idea.
However, I could be convinced that not renewing the tax cuts once they expire, and replacing them with some other mix of cuts and incentives, would be better, or maybe just more appropriate for the current economic situation. Maybe the reductions are jimmied a bit to help some other income groups. Again, I'm not economist, but this is something that could very well happen.
You also have Mike Huckabee's "Fair Tax" that hits consumption. Not a bad idea in that it forces us to save money, a weak point for Americans, and that we theoretically pay our fair share since the "rich" will buy more expensive homes and cars, shop at Nordstrom's instead of Wal-Mart and be more likely to load up on toys like widescreen televisions. And it gets rid of the IRS and it's onerous income tax code.
The downside is that all economic classes purchase housing, transportation and some frivolity, and the rich can afford it more. Fair tax advocates call for a rebate to the poor, but then the whole fairness issue goes out the window and gets government involved again, defeating the entire purpose.
Remember Steve Forbes flat tax idea? The rich could afford 15 percent far more than the poor. Plus, regular folks like us kind of like our mortgage interest deductions.
But that's just academic talk. While the Bush tax cuts are in their golden years, so to speak, there will need to be some sort of replacement whether small, readjusting rate cuts for the various income levels, or major, like the ideas mentioned above.
