There are a three elements to economic recovery: people must need to buy things, they must have the money to buy them, and they must be believe that that the future is worth investing in. Every economic downturn leads to people postponing purchases of new cars, new homes, and new consumer goods. After a while, we expect people to be compelled to catch up with purchases; the old car cannot be fixed and must be replaced, and so forth. What’s remarkable about the current poor economy is how little of the automatic bounce back we’ve seen. We look to the factors of money and confidence to explain the lack of recovery.

Tax loopholes are not mistakes. Loopholes are incentives designed into the tax code to encourage behaviors that the government prefers. Home ownership is considered a good thing, so the interest on a home mortgage is a tax deduction. That makes owning a home more affordable, so home ownership is encouraged. The mortgage deduction is a loophole. The pattern of all loopholes is that they cause economic decisions to be altered away from some things and towards others. The tax code has over 60,000 pages, with each loophole designed to favor something deemed good, at least by the Congressman who managed to get the loophole included.

The debate over raising the debt ceiling has passed, but the debt crisis will be with us for years to come. Unlike news of celebrity meltdowns and notorious crimes, the debt crisis has some tricky points that the press has not well explained. Everyone needs to know about debt ceilings and default and their consequences, taxing the rich, what the people really want (a miracle, of course), and the balanced budget amendment. There never was a danger of default, but the shape of the real problem has been left ill-defined by the press.

“Money should not go to Planned Parenthood because money is fungible and can be redirected to support abortion.” No, sorry, money is not fungible and government accounting rules see to that. “If Planned Parenthood is not funded, women will die because there is no other way to get health services.” No, sorry, there are many health service providers. The arguments echo the controversy over faith-based initiatives, in which Liberals argued that money given to churches for any purpose amounted to supporting religion.

Taxes are explicit, so it is easy to sum them up. Total spending by government at all levels in the US is estimated at $6.41 trillion for 2010. [ 1 ] That’s about 44% of the gross domestic product. So that means that the private sector gets to choose how to spend the remaining 56% of the money, right? Not really. The government also requires us to comply with its rules, and the indirect costs are substantial. My partial list of indirect costs amounts to $1.8 trillion, more than 12% of the economy on top of the 46%.

Some of the Tea Partiers would like to abolish the Departments of Energy, Education, Housing and Urban Development, Agriculture. They don’t have anywhere near the power to do that, but if they were close, the conventional meaning of “compromise” might be to only abolish two of the four. The compromise is getting part of what is desired rather than all of it. Under the conventional definition, if Democrats want to add legislation and Republicans want to repeal legislation, then leaving it all alone is a compromise. Liberals do adhere to the conventional definitions because they believe the purpose of government is to always expand it. Compromise is restricted to what government power is expanded and by how much.

One of the Democrats campaign themes is to assert that Republicans will return us to the failed policies of the past. The talking heads on television repeat the theme every day. It’s not unusual for a Party to have a broad generic slogan. What’s odd is that no one seems to ask, “Exactly what failed policies are you talking about?” Not even conservative commentators often ask the question, and Democrats rarely volunteer. It turns out that most of the failed policies were instigated and sustained by Democrats, and others were by the Federal Reserve Board, beyond Bush Administration control. Aside from policies, the mentality of an economic bubble was a product of human nature, not government. The Bush Administration can be faulted for some of it’s weak efforts to clean up the policies they inherited, but they made strong attempts to reform Fannie and Freddie.

There was a micro-story in the news this week about a new tax imposed on tanning salons. The 10% tax is supposed to generate $2.7 billion over ten years to help pay for the Obama health care legislation. Why tax tanning salons? Because tanning is related to skin cancer, so it ought to be discouraged by taxation. Everyone knows that whatever is taxed is discouraged, right? But when the revenues from the tax are calculated, the assumption is that there will be no effect, so revenues will be reaped as if no one is deterred. That’s the way tax revenues are usually calculated, which explains why there are usually shortfalls. These days, having computers and such, revenues ought to projected taking tax avoidance into account.

With the State of the Union Address and President Obama’s chat with the Republicans there is an ocean of … well, call it stuff to sort through. In the mix is the idea of building a high speed rail system to both create jobs and strengthen the country’s infrastructure. The pundits who have been feasting on Obama’s pronouncements have largely come up short on this subject. In my view, high speed rail is (1) a wondrous thing, (b) expensive, © best suited to densely populated countries, and (d) perhaps impossible to implement here. If it can be done at all, jobs would probably be a decade away.

I think it is possible for government to compete fairly with private enterprise, although I cannot think of an instance where it has happened. When the question is posed, what first comes to mind are subsidies by taxpayers to the government operation. That’s true, but there are also issues of access to and the cost of capital, costs of building market share, equatable rules of competition, and the risk of failure. All of these factors must be taken into account when considering if there is level playing field. I’m here to help.