California Republicans’ nutty economic “recovery” idea

Republicans like to recall Ronald Reagan. But do they remember how Reagan brought back prosperity in the 1980s?

The latest nutty Republican scheme comes from State Sen. Bob Dutton, R-Rancho Cucamonga, and Rep. David Dreier, R-San Dimas. They…

have introduced bills that would provide tax incentives for home buyers on state and federal levels, respectively.

In each case, the tax breaks would be temporary, aimed simply at helping to restart the moribund housing industry and its associated businesses.

Wrong, wrong, wrong, guys. That’s dumb, dumb, dumb.

Superficially, it’s appealing because it’s “tax incentives,” and we all want lower taxes don’t we? Especially if we’re good Republicans?

But tax cuts are worthless if they’re temporary. People and businesses look to the long term.  They only move into a house if they think that, in the long term, they can afford it by earning decent wages to pay the mortgage.

That’s why Bush’s tax rebate “stimulus” last year backfired and actually made the crash worse.

What got us into this mess was not too little spending, but too much, especially on housing.  Bush, the California state government,  and consumers went on wild spending sprees. Even if this Dutton-Dreier idea “worked,” it only would produce another temporary housing bubble like the one that first got us into trouble this decade, then burst.

Reaganomics revisited

So, what did Reagan do?

First, look to the long term. That means biting the bullet in the short term. The ongoing and deepening Bush Depression isn’t the problem, but the cure. Encouraging irresponsible spending is not the cure, but more of the disease.

Second, inflation has to be stopped. Reagan and Fed Chairman Volcker (the only decent one we’ve had since 1971, and now, fortunately, an adviser to Obama) crushed inflation by cutting the money supply and increasing interest rates. The 1981-82 recession was tough, but necessary. The 1980s Reagan prosperity followed, and continued more or less (with two rather minor recessions) until Bush wrecked everything.

Although Reagan unfortunately never re-established the gold standard that Nixon took us off in 1971, he and Volcker established a stable value for the dollar of $350 an ounce — on average — that lasted until 2001 when Bush and Greenspan panicked after 9/11 and brought back inflation. As of today, Jan. 24, 2008, gold’s price is $899 — 157% (and rising) above the $350 average Reagan establshed.

Third, real tax cuts are permanent and encourage production. Income and capital gains taxes need to be slashed, permanently, the way Reagan did it, at the national level and in California. America’s problem is too much spending and too little producing. We only should spend more once we produce more, not — as these two GOP guys want — before we produce more.

Until Republicans shelve Bushonomics for Reaganomics, they won’t win elections, nor deserve to.