Moving beyond conventional remedies
WASHINGTON (Reuters.com) – The stock market is falling, retail sales are down, GM and Xerox announce layoffs, and economists predict GDP declines in the 3rd and 4th quarters. Even Fed Chairman Ben Bernanke has called for a stimulus package.
House Speaker Nancy Pelosi’s prescription for economic stimulus centers on more infrastructure spending, as well as more aid to states, Food Stamps, rebate checks, and unemployment benefits, a package that could cost up to $300 billion.
This is the Keynesian “solution” that didn’t work in the 1930s—more government spending. It’s time for new ideas.
Infrastructure spending—building more roads, bridges, water and sewer systems, and light rail—is too slow. Spending occurs years after authorization because plans have to be updated, contractors hired, and inevitable environmental impact suits resolved.
Infrastructure projects are not necessarily undertaken in places suffering the most economic damage, but are spread around to win members’ votes.
The rest of Mrs. Pelosi’s plan wouldn’t rescue the economy. Extending unemployment benefits from 26 to 39 weeks increases unemployment, raising unemployment rates. And rebate checks didn’t save us from a recession when they were mailed out in May and June—why would they help now?
Here are four better ideas:
First, rather than extending the duration of unemployment benefits, Congress could give unemployed workers an additional tax-free sum, perhaps $5,000, after 13 weeks unemployment. This could be used for training, relocation, or general living expenses. If workers find another job before the end of the 26-week duration of unemployment benefits, they keep the $5,000.
This would help unemployed workers find new jobs in new industries or different parts of the country, while at the same time giving them an incentive to return to work early. Extending unemployment benefits, on the other hand, means that workers have to stay out of work longer in order to collect benefits.
Second, Congress could help the weak housing market by expanding permanent immigrant visas, or green cards, for those who promise to buy a house costing at least $300,000. At $300,000 a house, 100,000 visas could pour $30 billion into real estate markets, 200,000 visas could pour $60 billion. This influx of money would help stem deterioration in house prices, the root of the financial crisis.
Given the enormous desire abroad to get into America, the Immigration and Naturalization Service should have no trouble filling slots. Two hundred thousand visas is less than two tenths of one percent of our 155 million labor force, and skilled workers would make a valuable contribution to research and innovation.
Third, Congress could raise revenue to recapitalize the impaired banking and credit sector by selling oil and gas exploration and drilling rights. Oil companies have profits and want to drill; banks need capital.
Places to drill include the Arctic National Wildlife Refuge, the Outer Continental Shelf, and promising areas in the lower 48. As well as potentially raising $50 billion, this would exert downward pressure on energy futures and reduced dependence on foreign oil, translating into lower energy prices.
Finally, America’s markets need capital. If Congress were to set capital gains rates at zero for the next five years, America would see an influx of investment, both domestic and international, in equity and housing markets.
At the same time, Congress could make current tax rates permanent rather than having them rise on January 1, 2011, as currently scheduled. With a recession imminent, prospective tax increases would worsen incentives to work and invest.
With the economy contracting, it’s time to move beyond conventional remedies. Unemployment benefits, immigration, energy exploration, and tax policy have been highly controversial. A new look could mean a shorter recession and improved lives for millions of Americans.