Monday, June 11, 2012

Stagflation? Better get ready... wait, no. Too Late.

We've all heard the term, but many of my generation and younger don't know what it really means.  Stagflation is high inflation along with slow economic growth and high unemployment.  Sound like anyone you know?

My only disagreement with the linked article is that I believe it mistakes the root of what fixed stagflation previously with it's facade.  That is, the article assumes slashing interest rates is what fixed stagflation.  Indeed, it did, but only insofar as it spurred private equity growth.

When Ronald Reagan slashed tax rates in the 80's, that spurred growth.  It wasn't the slashing of taxes that fixed the problem, it was the growth.  So the question is, "how do we spur growth, granted already relatively low taxation and very low interest rates?"

Well, to the first I say, "there's always room to cut income taxes."  A flat-tax with a flat 17% (or something like that- I'm not economically savvy enough to pick the 'correct' number) would go far in spurring growth and private investment.  But what else could we do?  Here are two broad areas that could spur economic growth.

1) Slash gas prices.  This would require a few things to pull off: start offshore drilling and open up ANWR, make it easier to build new oil refineries, approve the KeystoneXL project, and many others.  If, however, we announced TODAY that we planned on doing just that, oil prices would plunge, and gas prices would go with them.  Increasing refining capacity, reducing some of the regulatory burden, including having to maintain a ridiculous number of "blends" would help, too.

2) Increase domestic economic stability.  This would include things like killing Dodd-Frank to reduce regulatory burden, but also doing things to indicate that we'll stick with a streamlined regulatory scheme for at least the next 10 years.  Over and over I have heard small and mid-sized businesses complain that their primary concern is not with costs, but with stability.  They lack the ability to plan.

Either of these two would help.  Both would spur job creation like we haven't seen in years.  A stable and reduced regulatory environment with low energy costs?  You wouldn't be able to hold businesses back.

But both of these are anathemas to Democrats.  They sponsored Dodd-Frank, after all.  Barack Obama, himself, was instrumental in causing the housing melt-down which lead to the "need" for increased regulation.  The Democrats roundly oppose anything that would make energy cheaper.

I guess it's no wonder that Barack Obama has lead us from a bad recession into worse stagflation.

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