A 3-Part Plan to Get the GOP Back on Its Feet

Thursday, 03 Oct 2013 01:13 PM

By Fred Alger

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Now is the time for the Republican Party to adopt a winning philosophy — a philosophy that recognizes the profound shifts in the economy of our country.  A chance to do away with the Dr. Death-like image of a party that is seen as wanting to eliminate entitlement programs.

This view causes much grief to a growing segment of our population and causes other nations to view us negatively.

The Republican Party needs a philosophy that embraces the aging, the disabled, the poor, the undereducated — in short, a philosophy which will make inroads into the Democratic Party’s base constituency.

Here are three ideas that will go a long way to making these inroads:

First, have the Federal Reserve write off its roughly $3 trillion of U.S. Treasury bonds. The Federal Reserve is simply an agency of the U.S. government. Thus, in a real sense, the government pays interest on these bonds to itself.

The write-off of these bonds would reduce the federal debt outstanding to $14 trillion. This write down would avoid a boring and contentious struggle over the debt limit.

Second, the Republican Party should endorse the Federal Reserve policy of quantitative easing. The amount should be targeted at the government’s entitlement spending which will certainly grow over time.

In addition the Federal Reserve can write off its holdings from time to time. Neither the write-off of the debt nor the continued absorption of U.S. debt is inflationary. The reason is that recipients of Social Security disability payments or retirement benefits, or food stamps, or indeed other entitlement payments have little or no ability to borrow money.

Thus the velocity of money has fallen and will continue to move at a low level. Accordingly, with low velocity of money, inflation has been low and will stay low as long as entitlements continue to be funded by the Federal Reserve.

If there was to be any inflationary effect due to the Federal Reserve’s quantitative easing, it would have been felt immediately as the Treasury issued checks to the deserving entitled persons.

Third, with an acceptance of the Federal Reserve’s key role it opens up the possibilities of substantial new federal funding of infrastructures like bridges, roads, schools and the like. And as a tradeoff for the support of the Republican Party, the administration might accept a substantial revision of the tax code; namely a flat tax starting at $20,000.

In all likelihood, some deductions will have to be eliminated to make the tax revenue neutral. But the philosophy here is to extol the working man. He should be recognized with a strong advertising campaign. A special license plate might be given to the family that does not receive one dollar of financial aid from any government.

These three ideas would help repair the GOP's reputation. Tiresome fights about the debt level and the federal deficit would be avoided. The idea of new spending by the government to accelerate growth of the economy would be accepted.

The Republican Party would embrace a can-do positive philosophy and rid itself of the negative image it has had in the past.

Fred M. Alger is the founder of Fred Alger & Company¸ Inc. a successful investment management company in New York City.

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