January 11, 2009

What Kind of Stimulus Projects Should Be Considered?

One area of consensus for economists is the belief that things are going to get a lot worse before they get better. As John Mauldin points out in his news letter, a number of economic factors are working together that need to change before we will see any improvement:

Overcapacity, rising unemployment, imploding leverage, lack of borrowing and/or lending, a serious retreat by consumers, and increased savings are all the conditions needed to bring about deflation. Left unchecked, we could soon see something like what Japan has experienced, and even potentially worse, as they started with a savings rate of 13%. But deflation is not going to be left unchecked. It will be fought by central banks everywhere with low rates and the printing press, as well as government spending.

So the other significant point of agreement amongst reputable economists is that it is exceedingly difficult to find enough projects to make real progress against so many negative feedback effects. Sure you can fund infrastructure, but it takes time to get these things going and even then, it won't necessarily help much in 2009.

So what should we be funding to make a real impact now before things get much worse? Obviously, extending unemployment insurance helps, but what we really need is to get people into jobs that make a difference. And it isn't the case we don't have lots of things that could be done.

Living On Earth had a segment on how we can put our stimulus dollars to much greater effect if we also fund sustainable programs.

My favorite program would be to fund Green Jobs to insulate, repair and make more energy efficient homes for people in our cities, our rural communities and our suburbs. Not only would this provide jobs for lots of people, it would be a great boon for those citizens who are struggling to pay their bills. As California has shown, programs that produce energy efficiency pay off for decades and make it easier for us to address global warming.

Joseph Stiglitz also thinks there could be a lot more bang-for-the-buck if the focus was just making sure states didn't have to layoff personnel or shutdown their programs. After all, it's in the middle of recessions that public services become more important.

Another program that would go a long way to helping people come out of the recession better would be to make school more affordable and to help people attend college or training programs that will help them get a job after the recession impacts recede. Investing in education is a great way to wait out the economic doldrums. And since one of the areas were people have gone deeply in debt over the past decade is for school loans, what about a bailout program for students? This would go a long way to helping them get on their feet at the start of their careers.

It seems that if we are going to spend lots of tax payer dollars to help the economy, investing in a green, sustainable programs, strengthening the safety net and helping people invest in their skills are things we should be promoting.

What are some of your favorite ideas if you had a trillion dollars to spend for fiscal stimulus?

Posted by Mary at January 11, 2009 12:55 PM | Economy | Technorati links |
Comments

Three years,$1.5 trillion:
$1 trillion for infrastructure
$300 billion in tax rebates
$200 billion in state aid

Posted by: brian at January 11, 2009 01:24 PM