by Quiplash

by Quiplash

Folks are getting bogged down in the details of Obama’s stimulus bill, which is, by their own admission, neither large enough, nor well enough structured to actually do the job. Other than the obvious (it must be big enough and efficient enough to end the recession not just in GDP but in wages and employment) here’s how to do a stimulus plan right:

Buy and fix while it’s cheap

During a recession most things become cheap. If you want to build new buildings, roads, bridges or trains, you should do it during a recession because it’s going to cost less than doing it any other time.  This is particularly the case for massive infrastructure programs.  If you want to drive high speed trains up and down the east and west coasts and maybe even across the country, this is the best time to buy up the land and right of ways.  Same if you want to improve the power transmission network.  Commodities are cheap now—wood, cement, steel, all that good stuff you need for building is less expensive than it has been in ages.  Lots of construction workers are out of work.  Buy up the land, lay down the concrete, rails, power lines, cable or subways now.  You should be building as much of the infrastructure you think you’ll need for the next 30 years now as you can, because it may be decades before it costs this little to build it. And because it will be used for decades it’s fair game to pay for it with long run 30 year bonds—people 20 years will be using it, they can pay for it too.

Provide a direction private industry and individuals can get behind

The stimulus bill and other economic policies need to show where the industry of the future is going to be, so that private actors know where to build up their own capacity, where to hire and what to buy capital equipment for.  Commit 200 billion a year to a massive telecom buildout for the next 4 years, and companies are going to line up to get involved in that business.  Make it clear you’re going to massively expand health infrastructure and they’ll line up for that business.  They’ll make long term investments, hire people, train people and do R&D. Programs that look like they will go away almost immediately won’t make businesses decide to invest in increase capacity—it might not be there next year.  Right now the only large scale project that looks really certain to occur for years under the Obama administration is a war—the Afghan war.

Restructure to allow unfettered growth in the future

The last economy cracked up for a reason.  Or rather, for multiple reasons.  You need to know what those are, and you need to get rid of them, so it doesn’t happen again.  If you don’t properly regulate the financial industry they will do another bubble (especially since you bailed them out of the downside, so why shouldn’t they?  They got the profits, and the public paid the losses.)  If you don’t do something to make sure that oil prices don’t spike again (both on the demand end and in terms of reigning in speculative excess) then the next time there’s a half decent economy they will strangle growth again.  There are plenty of other places where problems need to be fixed (too low corporate tax rates leading to cashing out instead of reinvestment, if you want a third).  If you don’t fix them, all you’re doing is putting electrical paddles to a patient whose heart is still a piece of junk and who is still going to have another heart attack when he eats his next cheeto(tm).

Spend directly or give to people who will spend

Marginal prospensity to save is what economists call the fact that if you give a rich man a hundred dollars he probably won’t spend it and if you give a hungry man a hundred dollars he probably will.  This is why food stamps have the highest stimulative effect and why tax cuts for corporations effectively have almost no stimulative effective. So when you’re designing a stimulus you want to give money to people who will spend it, or you want to just spend it yourself.  And, in fact, if the government spends it it gets spent a lot more effectively in many cases.  The government isn’t going to run out and buy a TV made in China, after all, it’s going to insist on buying American as much as possible.  The stupider the stimulus bill for Americans, the happier foreign manufacturers will be.

economic-benefits-of-stimul.thumbnail.jpgShift from low return policies to high return policies

This is simple enough.  Spending money on some things gives a lot more money than on other things.  Reduce spending on things with a low stimulative effect, take that money and spend it on items with a high stimulative effect.  Simply ending the Bush tax cuts and spending that money on items with a decent return would be worth a couple hundred billion dollars worth of stimulus alone.  Not doing Obama’s proposed tax cuts and spending that money on activities like infrastructure and expanded food stamps would likewise increase the effective stimulus by 50 to 90 billion dollars.  (Shorter rule: do things smart, not stupid.  D’uh.)

Doing a stimulus bill with these principles in mind would be both pragmatic and visionary.  The vision comes in in giving the economy a direction and fixing the errors of the past, the pragmatism comes in because this would actually work, unlike the current Obama plan, which is insufficient to do the job on its own terms, has no vision of a future America and which doesn’t do enough to fix the problems of the past.

Related posts:

  1. FDL Book Salon Welcomes Robert H. Frank, The Economic Naturalist’s Field Guide: Common Sense Principles for Troubled Times
  2. Biden to Smack Boehner Around on Stimulus
  3. Eric Cantor Says Stimulus Bill Failed, Except That Whole Creating Jobs in His Home State Part
  4. Why Can’t a Better Health Care Plan be the Next Stimulus?
  5. White House Calls Kyl’s Bluff on Canceling Stimulus, Republicans Whine About It