-----Original Message----- From: [email protected] [mailto:[email protected]] Sent: January-14-09 3:59 AM To: [email protected] Subject: A More Stimulating Stimulus
1 Ideas for Obama -- Paul Krugman 2 Yes, We Can Make the Stimulus More Stimulating -- Dean Baker Krugman: Ideas for Obama By Paul Krugman Monday, January 12, 2009 <http://www.iht.com/articles/2009/01/12/opinion/edkrugman.php> Last week President-elect Barack Obama was asked to respond to critics who say that his stimulus plan won't do enough to help the economy. Obama answered that he wants to hear ideas about "how to spend money efficiently and effectively to jump-start the economy." O.K., I'll bite - although as I'll explain shortly, the "jump-start" metaphor is part of the problem. First, Obama should scrap his proposal for $150 billion in business tax cuts, which would do little to help the economy. Ideally he'd scrap the proposed $150 billion payroll tax cut as well, though I'm aware that it was a campaign promise. Money not squandered on ineffective tax cuts could be used to provide further relief to Americans in distress - enhanced unemployment benefits, expanded Medicaid and more. And why not get an early start on the insurance subsidies - probably running at $100 billion or more per year - that will be essential if we're going to achieve universal health care? Mainly, though, Obama needs to make his plan bigger. To see why, consider a new report from his own economic team. On Saturday, Christina Romer, the future head of the Council of Economic Advisers, and Jared Bernstein, who will be the vice president's chief economist, released estimates of what the Obama economic plan would accomplish. Their report is reasonable and intellectually honest, which is a welcome change from the fuzzy math of the last eight years. But the report also makes it clear that the plan falls well short of what the economy needs. According to Romer and Bernstein, the Obama plan would have its maximum impact in the fourth quarter of 2010. Without the plan, they project, the unemployment rate in that quarter would be a disastrous 8.8 percent. Yet even with the plan, unemployment would be 7 percent - roughly as high as it is now. After 2010, the report says, the effects of the economic plan would rapidly fade away. The job of promoting full recovery would, however, remain undone: the unemployment rate would still be a painful 6.3 percent in the last quarter of 2011. Now, economic forecasting is an inexact science, to say the least, and things could turn out better than the report predicts. But they could also turn out worse. The report itself acknowledges that "some private forecasters anticipate unemployment rates as high as 11 percent in the absence of action." And I'm with Lawrence Summers, another member of the Obama economic team, who recently declared, "In this crisis, doing too little poses a greater threat than doing too much." Unfortunately, that principle isn't reflected in the current plan. So how can Obama do more? By including a lot more public investment in his plan - which will be possible if he takes a longer view. The Romer/Bernstein report acknowledges that "a dollar of infrastructure spending is more effective in creating jobs than a dollar of tax cuts." It argues, however, that "there is a limit on how much government investment can be carried out efficiently in a short time frame." But why does the time frame have to be short? As far as I can tell, Obama's planners have focused on investment projects that will deliver their main jobs boost over the next two years. But since unemployment is likely to remain high well beyond that two-year window, the plan should also include longer-term investment projects. And bear in mind that even a project that delivers its main punch in, say, 2011 can provide significant economic support in earlier years. If Obama drops the "jump-start" metaphor, if he accepts the reality that we need a multi-year program rather than a short burst of activity, he can create a lot more jobs through government investment, even in the near term. Still, shouldn't Obama wait for proof that a bigger, longer-term plan is needed? No. Right now the investment portion of the Obama plan is limited by a shortage of "shovel ready" projects, projects ready to go on short notice. A lot more investment can be under way by late 2010 or 2011 if Obama gives the go-ahead now - but if he waits too long before deciding, that window of opportunity will be gone. One more thing: Even with the Obama plan, the Romer- Bernstein report predicts an average unemployment rate of 7.3 percent over the next three years. That's a scary number, big enough to pose a real risk that the U.S. economy will get stuck in a Japan-type deflationary trap. So my advice to the Obama team is to scrap the business tax cuts, and, more important, to deal with the threat of doing too little by doing more. And the way to do more is to stop talking about jump-starts and look more broadly at the possibilities for government investment. Copyright © 2009 The International Herald Tribune === Yes, We Can Make the Stimulus More Stimulating by: Dean Baker, t r u t h o u t | Perspective Monday 12 January 2009 <http://www.truthout.org/011209R> President Obama could not find any economists who were able to see the housing bubble for his economic team. Fortunately, he indicated that he would be willing to listen to those of us who did in designing his stimulus package. In response to his request for ideas on how to make his economic recovery package more effective, I have put together the following list of seven proposals. This is a mix or match list, intended to be added to the list of items already suggested, although given the severity of the downturn, all of them could probably be included without causing concern about excessive deficits. 1) Extend Health Insurance Offer a $2,000 tax credit for any firm that gives health insurance to employees not currently covered. Match at a 70 percent rate any improvements in health care coverage (e.g. lower employee premiums) up to $1,000. If 20 million workers get coverage, this will cost $40 billion a year. If another 50 million workers get added benefits that average $800 per year, this will cost the government another $28 billion for a total cost of $68 billion a year. This would be a great first step towards universal coverage. If President Obama also allowed employers and individuals to buy into a Medicare-type public plan, then he will have gone a long way towards reforming the health care system. 2) Publicly Funded Clinical Trials Start a system of publicly funded clinical trials. The point would be to take the conduct of trials out of the control of the drug industry so that doctors and researchers would have immediate and full access to all research findings. As a quid pro quo for paying for the trials, the government would get control of the licensing of the patent. The drugs developed through this system would all be sold as generics costing somewhere near $4 apiece at Wal-Mart. The payback from this would be enormous, instead of spending $330 billion a year on prescription drugs in 2012, we might spend closer to $30 billion. We'll be paying $30 billion a year or so for clinical trials, and maybe close to that much in licensing fees, and getting much better medicine. And, as a side benefit, people in developing countries would get cheap drugs too. We could put an end to "free-trade" agreements that try to jack up drug prices in poor countries through stronger patent protections. Total cost: $30 billion a year. 3) Cash for Clunkers Princeton economist Alan Blinder recently argued in the NYT for a program of buying back older, more-polluting cars at a premium over their book value. This would get the most-polluting cars off the road (raising average full efficiency) and put some money into the pockets of the people who own them. Most of these car owners will have low and moderate income, so we will be putting cash into the hands of people who need it and will spend it. Blinder calculated that we get 5 million older cars a year off the road for a cost of less than $20 billion a year. 4) Subsidies for Public Transportation People in the United States take more than 10 billion trips on public transportation each year. This has enormous environmental benefits. Not only are these people consuming much less energy by using public transit, by not driving themselves, they are reducing congestion, and therefore reducing the amount of energy wasted in traffic jams. The government can encourage public transit and get money into the pockets of the people who use it (disproportionately low- and moderate-income people), by giving a $1 subsidy for each trip that gets directly passed on in lower fares. For someone taking a subway or bus twice a day, this will amount to savings of $500 a year. The government can include some additional funding to buy more buses and train cars. The cost would be approximately $13 billion a year. 5) Funding for Writers/Artists/Creative Workers In the New Deal there was both a federal arts project and a federal writers project. These programs employed thousands of young artists and writers. A creative stimulus package can extend this idea for the Internet Age. Suppose that President Obama made $10 billion a year available for state and local governments to support various types of creative and artistic work. This could include music, movies, writing books, even journalism. The one condition for support is that all material be made freely available in the public domain. (Better yet, it could have copyleft protection.) This funding would be sufficient to employ 200,000 people a year at an average of $50,000 each. This would put an enormous amount of creative work in the public domain that people all over the world could download at zero cost. In the first year or two, we could have this program administered through public agencies, but in later years we can have people choose for themselves which work they want to support through a tax credit. The cost would be approximately $10 billion a year. 6) Funding for the Development of Open Software In the same vein, the government can spend $2 billion a year to develop open source software. This money can be used to further develop and simplify open source operating systems such as Linux, as well other forms of free software. The payoffs from this spending would be enormous. Imagine that every computer buyer in the world would be able to get a computer for which the operating system was free, as was almost all the software that they would ever use. This would surely save consumers an average of at least $200 per computer. With sales at close to 20 million a year, the savings in the United States alone could easily exceed the cost of supporting software development. Adding in the benefits (and presumably some contributions) from the rest of the world, we will be way ahead by going the route of publicly funded open software open software. The cost would be $2 billion a year. 7) Pay for Shorter Workweeks and More Vacations The United States lags the rest of world in that its workers are not guaranteed any vacation time, sick leave or family and parental leave. In Europe, five or six weeks a year of paid vacation is standard. Also, all West European countries guarantee their workers some amount of paid sick leave and paid parental leave. The stimulus gives us a great chance to catch up with the rest of the world. The government could give make up the pay for two years for any paid cutback in hours, up to 10 percent of total hours worked in a year and $3,000 per worker. This means that if a firm offered workers who previously had no paid vacation, five weeks of vacation a year, the government would provide a tax credit to pick up the tab, up to $3,000 per worker. Similarly, if they extended 10 days of paid sick leave, the government would provide a tax credit for the amount actually used. If employers of 70 million workers (half of the labor force) received an average tax break of $2,500, the cost would be $170 billion a year. There are undoubtedly other items that should be added to this list. As President Obama's chief of staff, Rahm Emanuel, said, we should not allow this crisis to be wasted. We should not be trying to just bring the economy back to where it was before the housing bubble crashed. Rather, we should be looking to create a cleaner, fairer, better country. Not all of it will be accomplished with the initial stimulus package. Not everything will even be accomplished in President Obama's first term. The real question is whether the country can do better than the modest stimulus package that has been laid out thus far. President Obama knows that we can. _____________________________________________ _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
