The Great Stimulus Debate: Round I
At the Brookings Institution this morning, a standing-room only crowd heard five economic heavyweights debate what may become the central domestic policy issue of 2008. Do we need fiscal stimulus to keep the nation out of recession, and, if we do, what should it look like?
The group agreed, more or less, that we do need a quick, temporary, fiscal boost of roughly $100 billion and that it should be built around both a tax rebate and traditional countercyclical measures such as expanding food stamps.
Perhaps most interesting of all, the panelists, who included senior Reagan Administration economic adviser Marty Feldstein, Clinton Administration Treasury Secretary Bob Rubin, Tax Policy Center senior fellow Jason Furman, macro economist Mark Zandi and former Clinton Budget Director and Federal Reserve vice-chair Alice Rivlin, all agreed that the only way a stimulus package would fly is if it can avoid the theological fiscal battles that have tied Washington in knots for years.
That would mean, in Washington parlance, a clean bill. Feldstein, for instance, said that it should not include any attempt to extend the Bush tax cuts, even though he firmly believes such a change would boost growth. Similarly, while Rivlin, Furman, and Rubin are all concerned about long-term budget deficits, they would not include any explicit provisions to pay for a $100 billion stimulus package, even in the long-term.
Keeping a bill clean, of course, is easier said than done. One lobbyist I chatted with after the session found the whole idea greatly amusing. “This will be the only train leaving the station this year,” he said while laughing heartily over his very large steak, “and everyone will want to get on.”
For all their agreement, the panelists also previewed some of the deep potential fissures that will surely develop in any stimulus discussion.
Rivlin, perhaps concerned about what an actual stimulus bill would look like, would rather see Washington focus on containing the housing crisis. Given that the rest of the U.S. economy is still doing well, that might not be a bad idea.
Another flashpoint: Who exactly should get a tax rebate? Democrats will want to give it to everyone. In the past, the Bush Administration wanted to target only those who are already paying income taxes.
Not only could this be a political deal-breaker, but it raises big economic issues. How much of their rebate will people spend? Are lower income people more likely to do so than the wealthy? Many economists argue that such windfalls would be spent fairly quickly. A 2004 paper by David Johnson and others concluded that as much as 40 percent of the '01 rebates was spent within three months. But a 2002 study by Matthew Shapiro and Joel Slemrod raises doubts.
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Bravo! I hope those who frequent this blog will take a careful look at what you're saying, because it can make a huge difference in what sort of economy and what sort of economy we have and leave to our children.
Might I suggest some starting points for those to whom these are novel ideas? http://www.masongaffney.org/ — particularly the first article
http://lvtfan.typepad.com/
http://www.wealthandwant.com/ all speak to these issues. You might also look at http://www.answersanswers.com/
The only economic stimulus worthhy of its name is one that would stop the huge loss to the country of the effects of our present taxation system, that discourages the production and consumption process of the nation's wealth. This most anti-macroeconomic success is in the control of the factors of production of which the use of land and other natural resources far out-weighs any limited control it may apply to the capital investment or of the labor involved.
The current falling of the stock-market indices is not indicative of the true state although it is usually thought to be a symptom of it. All that it shows is the present speculative losses in second-hand shares or pieces of paper, not the actual capital durables nor our enterprise nor our potential to effectively make goods and to supply services.
Thus by introduction of an incentive tax to replace the present dis-incentive ones, does the nation stand any sincere chance of making progress by the complete use of its actual potential to make and enjoy the results of its working effort.
The speculation in land value, and its withholding from use which is the current and significant reason for the depression into which we are entering, could be lifted by the use of this form of taxion to reduce the high cost of production and similar monopolisation of its means of investment, by the encouragement of a large number of smaller entepreneurs who would be able to operate with deminished costs due to the cheeper and more readily available land and its more competitive and lower rent.
We should tax what the land-monopolist takes from the community, namely the opportunity to produce, and not tax what the worker/comsumer makes and necessarily buys.
It’s amazing that the political parties are not interested in a balanced approached to solving the slow down in the economy. They are more interested in the election posturing of helping the group they perceive are their voters. For one party or another to consider a program that does not cover a large cross section of people that can buy houses, spend money on repairs and create family stability is amazing. These people are the backbone of this country and members of all of the parties. This group, that owns homes, represents about sixty five percent of the population so stimulating this group targets the largest single group in the country.
These stimulation programs also need to insure that these same people can get loans that will stabilize the housing market across the country. If they do not provide this stability, then more of the housing sector will decline, putting more people at risk of losing their homes, creating family instability, and creating further pressure on the lenders. When homes sell, thousands of dollars are spent on inspections, the repair, remodel, and refurbishing of these homes. These dollars are not being spent today and it is showing in the numbers. A big percentage of these trade-people are self-employed yet the ivory tower brains keep relying on the unemployment numbers to make their decisions. They need to get out from behind their desks and talk to people doing real work.
Lenders make money doing loans. They need to make loans in a reasonable way. The agencies that set artificial amounts between conforming and jumbo loans need a reality check. Artificial is artificial and prior to the sub-prime joke, there was no difference in lender losses between jumbo and conforming loans. The lenders just charged more and made more on jumbo loans. Doing loans the old fashion way, like lenders did prior to the sub-prime period worked in terms of the buyers needing to qualify and sellers needing to sell. The proof is the numbers during that time.
Stimulate sixty five percent of the people and the rest of the country will follow…… DUH