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A Few Economic Fixes

Michael E. Lewitt is the editor of The HCM Market Letter and a money manager.

The third and final Presidential debate was short on ideas about how to solve our economic crisis and long on personal attacks and petty bickering. As a result, neither candidate did much to change the electoral calculus. McCain did make it pretty clear that Obama's plans to increase taxes make little sense, and Obama made it equally clear that McCain's plans to lower taxes on gigantic companies like Exxon are equally misguided. But missing from the discussion were more radical proposals to really fix the tax code. The tax code is one of the most effective tools we have to create the right kind of economic incentives. Unfortunately, all too often it has been used to saddle us with the wrong ones, which is one of the reasons we find ourselves in the mess we are in. For example, now is the time to increase tax credits for hybrid automobiles and impose significant tax penalties on vehicles that fail to meet minimum mileage standards.

My suggestion in post from two day's ago, to lower the speed limit to 55 mph was greeted with a resounding Bronx cheer. Nevertheless, this would be one of the simplest and fastest ways to lower gasoline consumption. Right now, there's a danger that lower gas prices will translate into complacency about our oil dependency. That would be a terrible mistake. As the price of oil comes down, we need to make it uneconomic for consumers to purchase gas-guzzling vehicles. This is why proposals to reduce gasoline taxes are problematic (both John McCain and Hillary Clinton proposed this during last spring). $70/barrel oil is still much too expensive and results in the transfer of wealth away from America into the hands of those who do not share our values. We are not "saving" anything by paying only $3/gallon for gas--we are just spending less. Both Presidential candidates are talking about energy independence, but it will be convenient to put this on the back-burner with the economic problems this country is facing. That would be a fatal error. Energy independence should be the centerpiece of plans to revitalize the economy.

Congress recently passed legislation to guarantee $25 billion of loans to American automobile manufacturers. These loans are supposed to be used to retool American automobile plants to manufacture more energy efficient vehicles. This is good policy. The government, however, should have received equity ownership as part of this loan guarantee. The automakers are currently in such bad financial condition that they are non-financeable without government funds. Accordingly, like the financial institutions that are receiving government support in exchange for taxpayer ownership, the American auto industry should exchange ownership for what amounts to a financial bailout. I fully expect the auto industry to radically restructure in a way that wipes out current shareholders and involves increased government in ownership. The loan guarantee program, rushed through in the midst of the financial crisis, would have been a good time to begin the process of handing over the keys to the American people.

--Michael E. Lewitt