How to Solve the Current Financial Crisis

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This article is about the steps the U.S government should take to solve the current financial crisis. It uses basic economic theory to offer real solutions.

STEP 1 TAXES AND TAX REFORM

Taxes should be lowered in order to increase market size (supply and demand) by lowering deadweight loss. This would provide a certain amount of jobs and would slow the slowdown. Would improve GDP. This is the best kind of stimulus since markets are good at resource allocation. The U.S is arguably the highest taxing country in the world.

Taxes reduce the amount of goods being bought and sold at any given time

STEP 2 HOUSING STABILIZATION/FINANCIAL SYSTEM

Provide generous mortgage rates and tax credits for people who purchase homes. This while significantly slowing or halting the production of new houses. Could hire homebuilders to build needed government buildings. Help people remain in their homes. This would help stabilize home prizes and help the financial system in the process. An increase in savings would help the credit markets in the long run, since banks don’t lend capital. They lend savings.

Banks need to be profitable before normality can resume

STEP 3 LOWER MINIMUM WAGE

This may not be that popular, but by lowering the minimum wage many jobs would be created. This would lower unemployment and stimulate demand.

By executing these measures the government could drastically help the U.S people and hasten recovery while improving existing conditions.

Price floors cause surpluses

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