$350 Billion in the Hole and Record Unemployment: Time for Something Different

Did I miss something? I mean, wasn’t all this money supposed to help the economy, protect jobs, ease foreclosures and clean up the sub-prime mortgage mess? Wasn’t all this spending supposed to build confidence in the financial system and break the logjam in credit? Yet here we are, $350 billion into the bailout—and that is not counting the billions that had already been spent to bailout, stimulate, rescue (or whatever other verb you wish to insert)—the economy and so far, here is what we have to show for it:

  • The highest unemployment in 34 years and more to come
  • A whipsawing stock market in a downward spiral
  • The credit logjam is still entrenched
  • The threat of deflation
  • Problems finding venture capital for start-ups
  • The auto industry begging for a piece of the pie
  • Companies changing their businesses to qualify for a bailout
  • Little consumer or investor confidence
  • Really ticked-off taxpayers

The list goes on but you get the idea. We have been in a recession for a year now and while the government was whistling past the economic graveyard, denying the recession up and down, they did little to mitigate the damage and now their only solution is to throw money at the problem.

Why Throwing Money Doesn’t Work

OK, for fairness sake, these folks in Washington have to at least seem to be doing something, but a point that has been glossed over is that they really don’t know what to do or how much money will be needed. The problem is that none of their efforts actually deal with underlying problems. Instead, they are merely propping up a failing system and that is a recipe for failure.

Why? Because when the government gets involved, throwing money all over and picking the winners and the losers, politics and power are emphasized over sound economics and that is never successful, unless you count success as a centralized economy manipulated by government. We are approaching that now with the massive investments the federal government is making in private institutions. Is it working? Have you seen positive changes? Will $700 billion succeed where $350 billion has failed? No, every time the government has tried to solve our economic problems by throwing money at those problems, it has been a dismal failure. What is needed is fundamental change both in the way we stimulate the economy and in the way, we manage it. It all begins with shedding debt.

The Gohmert Plan

Enter Representative Louie Gohmert (TX-1) and his proposal for economic stimulus. Gohmert’s plan offers none of the convoluted bureaucratic sexiness of the current bailout schemes, but with its simplicity, one finds certain elegance. He wants to use the remaining $350 billion to fund a two-month federal income and FICA tax holiday for all Americans.

According to Gohmert, in discussions with his colleagues, “the idea of returning an entire year of income tax was not catching enough groundswell. The idea of ending the ability of Secretary Paulson to squander his last $350 billion on firms run by his former Wall Street cronies, however, was catching plenty.  Pair that with at least two months of each taxpayer keeping his or her own tax dollars, and you have a great start to making people feel in control over and optimistic about their finances.”

To have a rough estimate of how much you might save under this plan, take your gross monthly salary (before taxes and other deductions) for two months and multiply that figure by .66. That figure will give you an idea of how much money you will keep.

Critics say that most people will save that money rather than spend, or they will pay down debt, get right with their mortgage company or pay off their credit cards. Isn’t that what got us in this mess in the first place, our addiction to debt? Shouldn’t paying down debt and getting that pernicious monkey off our backs be a priority for everyone? One would think so, and giving people more of their own money to accomplish that would certainly help. Not everyone would do that, of course, but there would likely be enough responsible people to make a difference.

“One question I have heard,” said Gohmert is, “’Won’t some people be tempted to put some of that money in the bank instead of spending it?’ Consider that one of the biggest problems with the economy has been the lack of confidence. That fear must be calmed, and our Wizards of Loss in Washington have not helped. If some Americans finally put a little nest egg or emergency fund in the bank, everyone will win, but especially the market and the economy.”

That is because savings are really investments in the bank, and banks use those funds to make loans. In other words, the more business you do with your bank, the healthier your bank will be. The healthier the banks are, the healthier the economy and the markets are, but there is more to it than that.

As a side effect, by suspending the FICA taxes on individuals, this legislation would also suspend them for businesses, giving businesses tax relief to the tune of $65 billion over the two months of the tax holiday.

The Bottom Line

Washington and Wall Street were the ones who got us into this mess through deregulation, social experimentation, legal manipulation and outright greed. To look to these same people for a solution to these financial woes is the height of folly and more people are realizing that each and every day.

You can show support for Rep. Gohmert’s efforts by signing this petition or by contacting your senators and congressional representatives. Such public outcry has been successful in the past, most notably with the Drill Here, Drill Now campaign for domestic oil exploration and upon immigration issues. The public voice is a powerful way to remind our public servants that they work for the people. With now $7.7 trillion at stake, it is time to remind the folks in Washington that they work for and at the pleasure of the American people, and with all this money flying out the window, the American people are not pleased.