Recovery Plan Needs To Target

Small Businesses

To the Editor:

The flaw in [President Barack] Obama’s recovery plan is that depending on a big government approach misses the difference between the economy when John Maynard Keynes lived and wrote his economic theories and today. Back then large business provided more than 80 percent of the jobs in the economy. While today most jobs in the United States, and other countries, are provided by small businesses.

The flaw in Obama’s plan as well as in [former] Secretary [of the Treasury] Paulson’s approach previously is that their efforts will not reach most of those small businesses.

And the larger problem that exists is today’s lack of ethics and morality in business and government officials. This “rules don’t apply to me mentality” also applies to our elected politicians. Let’s not forget the 200 Democrats and 120 Republicans (Congressman all), who took money from Freddie Mac and Fannie Mae to prevent reform and oversight.

That [former] Treasury Secretary Paulson just threw money against the wall in the hope that some would stick to solve the financial crisis was poorly thought out, and applied in an even worse manner.

Neither Paulson nor Obama understand that their approach misses the multiplier effect that could have been applied to all of the government’s efforts. Like multiplying E by M to the 4th power. (Economy times money to the 4th power).

That multiplier effect comes not from printing excessive amounts of money but from providing individual opportunity and incentives. Such as could be gained by lowering the corporate income tax rate from 35 percent to 25 percent. And from elimination of the capital gains taxes for a year or two. This approach would reach all of the small businesses that make up 75 percent of our economy. My point is they needed to do both this approach plus lower interest rates and increase liquidity available.

Obama’s stimulus plan also has a large time lag problem. There is at least an 18-month lag between implementation and effect. The corporate tax cuts and elimination of the capital gains tax has a more immediate effect.

Although this market-based economic approach is better suited to today’s situation than then Keynsian economics, it also needs rules and ethnics that prevent the Enrons, Madoffs, and Blagojevichs. It needs the rules and oversight that Presidents Carter, Regan and Clinton removed to be reapplied immediately.

Is Obama up to the change?

Daniel Kormanik

85 Great Ring Road, Sandy Hook                           January 28, 2009