Spending for stimulus is so 20th century

Economist James K. Galbraith makes the argument that traditional stimulus programs won't fix the economy. It's the economic equivalent of a candy bar versus a three-course meal, he contends.

He proposes to the Obama administration-elect a massive plan to re-finance millions of mortgages, a temporary (tho years long) cut in Social Security taxes to put more money in the pockets of workers and business. Extreme? Maybe. But are we approaching the next Great Depression. Wish we knew. Here's an excerpt:

What began as a housing collapse will not go away soon. Empty houses wreck home values for their neighbors. The ratings agencies are discredited, the investment banks are gone, and high finance is in debt deflation. Foreign investors won't soon trust the market for US private debt, even for blue chip corporations, so long as they remain saddled with toxic health care costs...

The historical role of a stimulus is to kick things off, to grease the wheels of credit, to get things "moving again." But the effect ends when the stimulus does, when the sugar shock wears off. Compulsive budget balancers who prescribe a "targeted and temporary" policy followed by long-term cuts to entitlements don't understand the patient. This is a chronic illness. Swift action is definitely needed. But we also need recovery policies that will continue for years.

First, we must fix housing. We need, as in the 1930s, a Home Owners' Loan Corporation to restructure failed mortgages on sustainable terms...The FDR-era HOLC operated for almost two decades and at its peak employed 20,000 people...

...Let's declare a payroll tax holiday, funding Social Security and Medicare directly from the treasury, until the economy gets back on track. Workers would get an immediate 8.3 percent raise to help meet their mortgages; employers would have the same amount to spend on wages, job creation, or investment."
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