Monday, February 16, 2009

Finally, Some Good Ideas for Saving the Economy!

James Galbraith is actually one of those economists who understands economics. Go figure! So really, it's a relief to see he's thinking up good ideas for real stimulus.

– make aid to states and localities flexible and open-ended. The goal should be to stop all cuts in public services and layoffs of staff. States and localities should be offered a simple deal: no service cuts and no changes in tax rates. In exchange, the federal government will cover the gap in their revenue for the duration. Alternatively, the federal government could simply offer general revenue sharing on a per capita basis.

– establish and fund a full-fledged National Infrastructure Fund with the capacity to finance and to coordinate public investment projects on an ongoing basis. Congress would therefore largely delegate decisions over the type of local capital investment, including school construction which was cut from the Senate bill for no defensible reason.

– increase Social Security benefits across the board. The purchasing power of the elderly as a group is now gravely eroded by the collapse of stock market values, and the policymaking community needs to realize that the grand experiment in funding retirements via the stock market is ending. For the future we will need more Social Security, not less. And that means that the historic political link between Social Security benefits and the revenues from the payroll tax should be suspended.

– declare a full payroll tax holiday for the duration of the crisis. A holiday has advantages over the credit scheme, as it can be implemented at once for all workers and employers. The holiday could be made subject to a trigger, so that when the economy does begin to recover rapidly, part of the tax can be restored.

– pursue the foreclosure moratorium just announced, establishing the equivalent of a Home Owners Loan Corporation to deal with troubled mortgages, via renegotiation or conversion to rentals. This can be done, largely, through Fannie Mae, Freddie Mac and the Federal Reserve Board, but it will require sufficient staff to inspect and supervise mortgages at the retail level. Apart from this, and the ongoing nationalization of commercial paper markets, there isn't much more to expect from the Federal Reserve at this point.

Why can't the media give folks like him who get it right more of the attention he deserves?


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