"The first item would be a sales tax on Wall Street financial transactions like transfers of stocks, bonds, and credit default swaps. Most of us have to pay a sales tax when we buy clothes and food, but the Wall Street crew insists that even a tax of just a few hundredths of a percent would bring our financial markets to a halt. They conveniently ignore the fact that the London stock exchange has had a tax of 0.5 percent for more than three centuries and is still one of the largest stock markets in the world.

The Wall Street crew carries so much power with the Washington politicians that they have largely kept financial transactions taxes off the table.

In fact, they have assigned Treasury Secretary Jack Lew the job of lobbying the European Union to keep it from imposing a financial transactions tax on its banks. The Joint Economic Committee projected that a tax of just 0.03 percent could raise $400 billion over a decade, but the politicians are not going to buck Wall Street."

. . . .

So there you have it, four simple tax changes that could raise lots of money by taking away subsidies for rich people. They all make good economic sense, but they would take Washington away from its central purpose: using the government to take money from the rest of us and give it to the rich.

Dean Baker, editorial, op-ed: "Ending Tax Breaks . . . " April 10, 2014.

 

Now | the Great Recession | Who was to blame? | Extent of the losses | How long will it last? | Who's who?

Actually, from a strict economic perspective President Bush is absolutely responsible for the fallout from the collapse of the housing bubble. Competent economists recognized the bubble and warned of the harm that would come from its inevitable collapse. President Bush absolutely can be blamed for the fact that he chose to ignore the bubble or that his economic team failed to recognize it.

The fact that the NYT found a Republican economist who would not hold President Bush responsible for the bubble does not make a compelling case for his innocence. It is also important to note that President Bush was eager to claim credit for the growth created by the expansion of the bubble (and the NYT was anxious to give it), therefore it is difficult to see any reason that he should not be blamed for the recession created by its collapse.

It just took a little common sense to see that a disaster was imminent, even if the exact timing and course could not be predicted. But, our elites lacked commonsense, and that is why we now face such a dire economic situation.

The main cause of the economy's weakness is not insolvent banks and lack of credit; it's the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble's partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero.

With much of this equity now eliminated by the collapse of the bubble, many families can no longer sustain their levels of consumption. The main reason that banks won't lend to these families is that they no longer have home equity to serve as collateral. It wouldn't matter how much money the banks had, they are not going to make mortgage loans to people who have no equity.

And house prices are not going to come back. . . . We are not going to get the price of $200,000 homes in central California back up to $500,000.

The main problem in recovering from the recession will be finding ways to boost demand other than household consumption. In the longer run, this will mean reducing imports and increasing exports. In the short-run, we will have to rely on government stimulus to help spur growth and reduce unemployment. The Democratic demands for stimulus were not extraneous to the legitimate goal of a bank bailout bill. Fiscal stimulus must be central to any serious effort to boost the economy. The weakness of the banks contributes to the downturn, but they are not the core of the problem. We would still be facing a recession even if all our banks were flush with cash.?