One Republican's economic fix: Higher taxes, more controls

As long as we're all feeling the pain of the financial-system crash and the deep recession, let's double up on the misery factor by making some hard national choices, says Charles Munger, the longtime business partner of Warren Buffett.

In an op-ed article in the Washington Post today, the 85-year-old Munger -- a billionaire Republican -- argues for raising taxes to help fund the economic-stimulus tab so that the budget deficit doesn’t blow out further.

He also wants to impose new regulations on the financial system to restore some sense of "morality and prudence."

"A key question: Should we opt for even more pain now to gain a better future?" Munger asks. "For instance, should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes."

Clearly, he hasn’t been talking to Rush Limbaugh.

As for "new controls" (a.k.a. re-regulation), Munger takes aim at the credit-default-swap market, which allows speculators to bet that a company or municipality will default on its bond debt.

Munger writes:

This system, in which completely unrelated entities bet trillions with virtually no regulation, created two things: a gambling facility that mimicked the 1920s "bucket shops" wherein bookie-customer types could bet on security prices, instead of horse races, with almost no one owning any securities; and, second, a large group of entities that had an intense desire that certain companies should fail. Croupier types pushed this system, assisted by academics who should have known better. Unfortunately, they convinced regulators that denizens of our financial system would use the new speculative opportunities without causing more harm than benefit.

As for raising taxes, Munger invokes the example of the U.S. Marshall Plan, which helped rebuild Europe after World War II.

Just as Congress reached a consensus on the Marshall plan out of "moral duty, supplemented by prudential considerations," Munger asserts that "the modern form of this duty would demand at least some increase in conventional taxes or the imposition of some new consumption taxes. In so doing, the needed and cheering economic message, ‘We will do what it takes,’ would get a corollary: ‘and without unacceptably devaluing our money’ " by driving the federal deficit ever higher.

And raise taxes on whom? Hedge fund managers would be a good place to start, Munger suggests.

-- Tom Petruno

Photo: Charles Munger at the USC Gould School of Law in 2007; he was delivering the commencement address. Credit: Stephen Osman / Los Angeles Times

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