Small Fixes for a Growing Problem

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If the Federal Reserve’s stance is any indication, they are not the ones to ask. Fed Vice Chairman Donald Kohn has gone on the record with the following quote: “We cannot say more that we know and we should strive to avoid giving the impression that we know more than we do.” Okay. Mr. Bernanke was much more upfront with his view of the economy falling just this side of saying “I dunno know”. Now the markets are optimistically calling for a 750 basis point cut!

But it is an election year and despite the incredibly good television the candidates are providing, the economy has made itself an issue. John McCain claims to know little about the economy. Mike Huckabee has taken the cut taxes for the rich approach while giving the middle class some typical GOP lip service about it will benefit them. Mitt Romney simply says he’s a better choice than the Democrats.

And the Dems, the party of the taxpayer see the economy as a much more complicated mechanism that needs to be fixed by reassuring the populace that A, it is not their fault and B, it can be fixed. Their focus has been on giving the states relief (John Edwards and Hillary Clinton), which sends a message to all Americans that the mess we are in will not be an easy fix to Barack Obama, who seems to have taken the GOP side – slash taxes and call it incentive.

While the candidates are still acting like moths to a porch light, chasing each voter’s whim and many doing so without much more than generalizations, the economy swoons under the weight of bad-to-worse decisions.

Businesses, left to deal with their own poor mistakes have been crying for relief as well. Investors, who may have turned a blind eye to risk over the past year or two, reeling from the fallout are also standing in the same line. Everyone wants to be stimulated, revitalized, and rescued. Here’s my plan.

I have read numerous proposals for economic stimulus. Most recently, the Wall Street Journal harkened back to a simpler time when the tax code was much less democratic and the economy was less global. When John Kennedy took office, this country was feeling much the same as it is today. Deficits were looming, an un-winnable war was being waged, unemployment was rising and the economy was not feeling the love or the benefits that only Washington could bestow.

The JKF Stimulus Plan or as it was referred to at the time, the New Frontier, offered the American people a more optimistic and hopeful look at a world. Many remember the New Frontier as little more than a promise to be the first in space rather than the economic stimulus package it actually was. Kennedy’s plan focused on short-term stimulus, much like what is being discussed today but with much longer-range goals.

Question is can his ideas still work in this economy four decades removed. His focus on expensing was the right thing to do at the time. To many investors, the word expensing suggests an underhanded accounting technique used by more than a few large public corporations to hide compensation for its senior executives tucked away in stock options. But the idea of expensing, as it relates to equipment purchases has some solid footing among businesses, large and small.

For those that may not know how this works, expensing allows a business to write off the cost a buying a piece of equipment in the first year rather than deducting it from their taxes over the course of its usefulness (usually five years).

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