I know what Obama should do, but won’t, it will be politically too unpopular. But this is my recipe to fix the economy.
First, no more bailouts. USA has already spent 2 trillion dollars on bailouts, which is two trillion too many in my opinion. The worst mistake he could do is to try to bail out GM, let GM fail; it won’t be the end of the world.
Currently here is a lot of junk in the US economy, and until the junk is cleared out, there cannot be sustained recovery. That means that inefficient, loss making companies must be allowed to fail, whether it is General Motors or a bank.
Sure, that will cause plenty of hardship, but USA has been on a wrong economic path for the past eight years, and it won’t correct its course without drastic measures.
Second, Obama must make serious attempts to balance the budget. Bush has spent like a drunken sailor, currently USA runs a huge deficit. It probably will take Obama two terms to balance the budget. However, he must make a start.
That means deep, savage spending cuts; he must be absolutely ruthless, merciless in cutting spending. Nothing should be off the table, Social Security, Medicare, Medicaid, nothing, everything must be cut. Perhaps across the board spending cuts of 5 % or 10% might be appropriate.
He must also increase the taxes; he needs more revenue if he is going to balance the budget. And not just tax increases for the rich. It is necessary to increase taxes on the rich, for economic fairness. However, that does not generate a lot of revenue; there just aren’t that many rich people around. Serious revenue can be raised only by a tax increase on the middle class.
By letting the weak, financially troubled companies fail and at the same time putting the government’s house in order, seeds will be sowed for economic recovery and there will be a recovery in a few years.
Sure it will cause a lot of hardship. However, US economy is on life support and it won’t be revived without drastic measures.
However, I don’t see any of this happening. While this is probably the only recipe for lasting economic recovery, it is also a recipe for surefire political suicide. I don’t see that happening.
I have always held the view that neither Obama nor McCain will be able to solve the economic problems facing USA. My prediction is that USA is in a long term decline, it will continue sinking slowly but surely under the mountain of debt and deficit.