How to Stimulate the Economy #2
How to avoid a recession? After more than sixty years of study and observation of U.S. income, I too have a proposal.
The Fed has already reduced the interest rate, which can be expected to be somewhat helpful in a matter of months. Fiscal policy, however, is the better tool for the state we're in. Our question is how best to increase employment and GDP. The Congress can choose its own programs or choose to affect private spending; it should do both. We should be looking at both speed and strength of stimulus. And while we're at it, we should be cognizant of the effect of what we do on current problems and goals.
The most predictable and the fastest and most powerful tool is government spending. Recall that when the U.S. entered World War II we went from 14% unemployment to a low of around 2% in a matter of months. At that time we started spending on munitions; we don't want more of that now. At the present time we should activate programs that would best fit goals for America, say, e.g., health care for low income children, or universal health care, or providing education for all pre-school children. Or the first steps in addressing the problem of global warming. Or rebuilding our crumbling roads and bridges. Any of these programs or a combination of them could be pursued until full employment is achieved.
Private spending could be a supplement to this. The best way to increase it would be to provide income to the poorest among us. The richest country in the history of the world has a population of around 13% living in poverty. This could and should be alleviated. The IRS could implement a negative income tax, i.e., send checks to those whose income is well below the poverty level. This would be similar to the Earned Income Tax Credit and could be simply an expansion of that to anyone, working or not, having an income below a certain level. These people would be likely to spend all that they receive--an immediate and sizable stimulus.
The Fed has already reduced the interest rate, which can be expected to be somewhat helpful in a matter of months. Fiscal policy, however, is the better tool for the state we're in. Our question is how best to increase employment and GDP. The Congress can choose its own programs or choose to affect private spending; it should do both. We should be looking at both speed and strength of stimulus. And while we're at it, we should be cognizant of the effect of what we do on current problems and goals.
The most predictable and the fastest and most powerful tool is government spending. Recall that when the U.S. entered World War II we went from 14% unemployment to a low of around 2% in a matter of months. At that time we started spending on munitions; we don't want more of that now. At the present time we should activate programs that would best fit goals for America, say, e.g., health care for low income children, or universal health care, or providing education for all pre-school children. Or the first steps in addressing the problem of global warming. Or rebuilding our crumbling roads and bridges. Any of these programs or a combination of them could be pursued until full employment is achieved.
Private spending could be a supplement to this. The best way to increase it would be to provide income to the poorest among us. The richest country in the history of the world has a population of around 13% living in poverty. This could and should be alleviated. The IRS could implement a negative income tax, i.e., send checks to those whose income is well below the poverty level. This would be similar to the Earned Income Tax Credit and could be simply an expansion of that to anyone, working or not, having an income below a certain level. These people would be likely to spend all that they receive--an immediate and sizable stimulus.
posted by Gladys at 2:33 PM
1 Comments:
Gladys: Great ideas to stimulate the economy. I wish our Congress and President could be made to understand your recommendations. I understand. I am old enough to remember 14% unemployment.
That was recovery. Earlier in the 30's unemployment was 25% and we were approaching a Revolution in the US.
One point I question. Are we sure " providing education for all pre-school children" would help?
The Wall Street Journal of Feb 29 has large feature titled "What makes Finnish Kids so Smart". In the full page story the ratings of the top H.S. student scores of 50 some countries shows Finland #1 and the US not making the list. AND among many differences from US schools, Finland kids start school at age 7. If that would help, we could save a lot of investment in facilities and maybe have smaller classes in out K-12 schools.
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