A Stimulus for the Long Run

When Congress goes back to work next week, its first job should be another stimulus package for the sinking economy. President-elect Obama also has said he wants another stimulus of his own design after he is sworn in. We know that more stimulus is necessary, because the ongoing financial and housing market crises will very likely produce an unusually long and deep recession. We also need additional stimulus as insurance against the possibility of another economic shock that would worsen the downturn, such as a run on the dollar that drives up interest rates, or worsening housing foreclosures that trigger more failures in financial institutions and further drive down consumer and business confidence.

The path of least resistance to deliver that stimulus is another round of tax rebates for American families, which in theory families would spend to jumpstart demand and, ultimately, the business investments and jobs to meet that demand. However, the catch is that approach is very unlikely to work this time. Most of the rebates from the spring 2008 stimulus were saved rather than spent; and given the recent, sharp decline in confidence, even a greater share of another round would be saved and so provide little stimulus. Moreover, President Obama and Congress can put those billions of dollars to uses that will stimulate long-term growth and income gains much more effectively.

Instead of tax rebates, congressional leaders and President-to-be Obama should look to targeted tax changes and targeted spending increases, with the lion's share going in a new direction: investments in the basic elements of growth for a 21st century economy. The stimulus should and will include traditional measures such as aid to the states facing serious revenue shortfalls and an extension of unemployment insurance. But for its major thrust, President-elect Obama should use the stimulus to drive policy reforms that will affect the shape and strength of the economy for the next decade, rather than simply affecting the timing of the next recovery. The stimulus should be first steps toward delivering on the change that President-elect Obama has pledged to bring to America.

This change should be directed toward creating a 21st century, low-carbon, innovation-driven economy, as the development, spread and efficient use of economic innovations will continue to be the most important factors driving all our future progress in growth, productivity, and incomes.

For example, productivity gains are increasingly tied to an employee's capacity to operate effectively in workplaces dense with information and telecommunications technologies. Within a decade, workers who cannot perform in such work environments will be marginalized economically. Therefore, the stimulus should help businesses and workers prepare for the ideas-based economy, through grants to community colleges to keep their computer labs open and staffed in the evenings and on weekends for any adult to walk in and receive free computer training, a plan Obama endorsed as Senator. The stimulus also could include an innovative program to provide inexpensive laptops to every sixth-grader in America and spread broadband installation to schools, local libraries, and human services offices that currently lack it.

There is already a broad consensus on the need to include infrastructure investment in the stimulus, but instead of addressing only roads and bridges, America can also take this opportunity to invest in a new generation of clean infrastructure. The federal government can lead the way, through greening its buildings and vehicle fleets and putting 1,000 megawatts of solar power on its roofs. It also can provide funding to help modernize the electrical grid and build a new generation of light rail systems for urban areas, as well as greater support for research and deployment in renewable energy and energy efficiency technologies, and tax credits and other incentives for greening America's homes and private buildings.

Aside from energy, the other rapidly rising business cost squeezing wages and jobs is health care. To help hold down these costs for the long haul, the stimulus can provide support for hospitals, clinics and physicians to purchase and install the hardware and software for standardized electronic medical records systems. This will serve as a first down payment for 21st century health care reform, and will ultimately reduce costs and promote best-practices at the nation's hospitals.

These are all investments we know we have to make if we intend to make the U.S. economy more efficient, innovative and sustainable. They also are all investments that will ultimate pay for themselves several times over. Congress and President-elect Obama can use this opportunity not only to create more jobs, but to do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure. And taking this course by passing a stimulus for change could be an early and important opportunity for him to practice both his new politics and a new form of economic leadership.

Dr. Robert Shapiro is Chair of NDN's Globalization Initiative. Simon Rosenberg is President of NDN.

Cross-posted at the NDN Blog.

Comments

[rmajh5]

Consider this. A man named Rafer Alston, a player with the National Basketball Association and currently with the Houston Rockets was suspended for two games and will consequently lose over $100,000 of his yearly salary for his suspension. Alston will still be left with well over four million dollars of his remaining yearly salary to survive for the rest of the year. Now reflect on this. That same $100,000 that Alston will lose amounts to about the cost of paying two young teachers in our public school systems around the country for a full year of work with our nation"s school children. Given the problems facing too many of our educational systems throughout our country, what does this all say about our priorities as a society?

[tomas0808]

That's a nice thought, and I know the world must progress, but what is also needed is for traditional labor to be valued again. Real physical labor. Because if we all become workers staring into little screens all day and manipulating numbers (not what humans were designed to do as 'work' and fraught with meaninglessness) the human race will continue on its present path of reducing everyone to being sick and fat and depressed.

[Pdubya]

will we print or borrow that money for infrastructure/stimulus?

the ONLY way for a proposal such as this to work is to cut spending drastically elsewhere and apply said portion to the deficit, otherwise: whether the bankers get the loot or we get the loot, our dollar will crash and it won't buy bread.

[Oldbuck]

You guy plan sound like you got it from Bush and how did that work out there are two are three things that are a must to any recovery. The first is two let a few of these banks fail we have let these idiots have it their way for the past 20 years they let greed put themselves into this position. We have to have some regulations everyone says that would be socialistic which is true. I don't care what they call it as long as it works it you don't take some of the peaks and valley out of the system we will have these so call recessions look at history. Had we been quicker to recognize the problem in the housing market that problem would not been so severe

[CamJon61]

The best thing the U.S. government could do would be to regulate credit card interestrates.
Reducing credut card rates would instantly free up consumer spending, the lack of which is the underlying cause of the U.S. the economy's crash.

Card rates are held up by a generally shared greed among lenders, sometimes predatory ones. The are not linked in any meaningful way to risk.

You know why all the card companies ave their head opffices in South Dakota? Because S.D. has the highest allowable limits under the laws of the 50 states. No other reason.

You know why your card rates are as high as they are? Because the industry has no oversight, is ogopolisitc and can get away with them.

High bank fees? They in no way reflect any bank costs of providing a service - they are pure revnue generators.

There is no greater victim on the world of croney capialism than the U.S. taxpayer/consumer.

[DuganS1]

Interest rates on credit rates are usually determined by the prime rate which fluctuates according to LIBOR, which is determined by the federal funds rates decided upon by the federal reserve board. If you don't like the number of points over prime you're getting on your card, it is a free market and you can get a card from another bank/entity.

[sposton]

Solid ideas. The only problem is will we have the investment necessary for such work? Where is the money going to come from?

[DavidBH]

The only lasting stimulus we can ever have to repair our economy must come from us, the citizens of the USA. Government can only screw up the economy and can almost never fix it. A free market with entrepreneurs who are driven to innovate and haven't been disincentivized, over-regulated or subsidized by the government is what has built this country. Unfortunately we have spent the last 30 years Walmarting our manufacturing sector to China. Now it is time for all of us to commit to "buying American" whenever possible. Even if pay pay a little more for our goods, we will be investing in the rebuilding our economy and bringing back our jobs. This is not protectionism, it's supporting the home team. We owe it to our children to resurrect our manufacturing sector, Otherwise, they will be left to flipping burgers in an impoverished America. My blog, www.AmericanBoom.com/blog is devoted to this topic.

[Veri]

Government only helps screw up the economy with poorly implemented regulations and bad policy. Of course, the latest round of government actually helped create this mess by, among other things, deregulating the financial industry.

Free markets are susceptible to a thing called greed. Another problem with a free market system is that corruption is very easy to breed in such an environment. In addition, free markets (aka Capitalism) are all about exploitation and greed.

A free market system has existed in The West for a very long time. It succumbed long ago to human ego, greed, and the desire to dominate others. Capitalism, like Communism, is an ideal that cannot survive the human ego.

Lassiez-faire capitalism eventually leads to strong ruling the weak. Business consolidates into a few hands (robber barons of old). Communism concentrates all financial decisions into the hands of a few. So, what is the difference between the two? Private property ownership. Which is an illusion. Don't pay your property taxes and see how long you "own" your property. Not long at all.

[DuganS1]

Money has been invested into the US manufacturing sectors in the past two years, mostly into our export industries (heavy machinery, chemicals, coal) and some import-competing producer goods sectors (like steel). A significant amount of money will not flow into many segments of US manufacturing unless the unions are weakened further. If the Obama administration comes in and passes pro-union legislation, our manufacturing sector will continue to suffer as investors will continue to build abroad.

[William1950]

yeah sure, invest in energy and medical stuff to cut costs... fine and good, the reason the first round of tax rebates, the so-called stimulus package, funds were not spent is simply because what can one do with six hundred dollars? at the time that would buy a couple of tanks of gas, or maybe a couple of weeks worth of groceries for a family of four. for a "stimulus" to work it has to be sufficient enough to actually go and buy something, and then to leave one better off, not just some spur of the moment purchase.
As to your tax changes... we should abolish the InFernal Revenue Service and go with a flat tax ... simple and fair. Or maybe a consumption tax, again simple and fair... any new tax structure needs to have NO deductions or exemptions built in.. with the one exception of the first twenty five thousand dollars of income is tax free...
But again... The reason we are in this mess is because of jobs, or lack of jobs.. globalism cannot work unless all are playing by the same rules.

[DuganS1]

A lot of the stimulus money was spent, which is why consumer spending remain relatively strong in Q2 despite extremely high gasoline prices. What money wasn't spent in the first months has been spent since or will be in the next months. The rebate checks weren't meant to revive the economy but to keep it propped up while the housing issues continued to be worked out. Apparently the rebate checks just weren't enough. The flat tax is a terrible idea because it's extremely regressive. We need to make the tax system more progressive, not less.

[William1950]

what you are calling regressive... i take it to mean that as it applies to the gross income of an individual that ten percent means less... but that is the only fair way to do it and as it is now, in our progressive system as one has more there are more ways to hide it and reinvest etc... which actually means that one pays far less. A flat tax with no exemptions and no deductiions... on any income over twenty five thousand, for individuals and for taxable entities... is fair.

[Fanboy615]

How about forgiving student loans? That would stimulate my economy no end....