HOW TO STIMULATE AN ECONOMY
ECONOMIC POLICY INSTITUTE - An effective, appropriate stimulus package should meet the following five criteria:
1. A stimulus package should generate growth and jobs to offset rising unemployment. . . The two feasible ways to boost demand are to increase consumer spending (for example through tax or monetary policy) or to increase government spending (at the federal, state, or local level). Any stimulus aimed at spurring more business investment will not be effective at this point, because business investment will remain sluggish until consumer and government demand picks up. For example, a recent study estimated that business investment write-offs and the dividend-capital gain tax reductions included in Bush's tax packages had a small "bang-for-the-buck. . .
Government spending is more effective than tax cuts in stimulating domestic demand for two reasons: a portion of the tax cut will be saved rather than spent immediately, and consumers are more likely than the government to spend on imports (rather than domestically produced goods). Approximately 10 cents per dollar of consumer expenditures will be spent abroad, while virtually every penny of investments in public infrastructure will be spent domestically. Especially problematic would be more tax cuts directed at the wealthy, which would not be as effective as tax cuts directed at the low- and middle-income households who would spend (rather than save) a larger share of any extra income.
2. A stimulus package should take effect quickly. . . Ideally, an effective package would have some components that have immediate effect and others that might have impact in six months to a year, thus ensuring a solid foundation for the recovery. . .
3. A stimulus package should raise current deficits but not affect the long-term budget outlook. The purpose of any good stimulus package is to boost immediate job growth. For this purpose we need one-time measures that, if the recession deepens, can be extended as necessary. Permanent, ongoing measures that will affect the budget two or three years from now are, in most cases, inappropriate. . .
4. A stimulus package should target unmet needs. Another goal of any good stimulus plan should be to meet, where possible, unmet social needs. For instance, it is widely acknowledged that there is a huge backlog of necessary school and bridge repairs and new construction projects. A temporary spending increase for such infrastructure would be doubly beneficial in that it would meet the other criteria listed above but also address an acknowledged, pre-existing need. Other examples could include funding needed sewage-treatment plant construction or making public facilities energy efficient.
5. A stimulus package should be fair. The distribution of wages, income, and wealth in the United States has become vastly more unequal over the last 30 years. In fact, this country has a more unequal distribution of income than any other advanced country. Therefore, a criterion for favoring one stimulus plan over another should be that the plan avoids exacerbating income inequality and, wherever possible, acts to lessen current inequalities. A temporary increase in federal revenue-sharing with the states, for example, would fulfill this criterion well by helping preserve public school spending, Medicaid for low-income families and low-income elderly in nursing homes, and other state programs that could face cutbacks due to state fiscal crises.
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The American Monetary Institute has such a proposal ready to implement. It calls for immediate investment in our ailing infrastructure as a means to create jobs and necessary money without over-inflating the dollar. You can read more about it at http://www.monetary.org
The expression has been verboten for almost 30 years - but I'll use it: Economic planning. What better time to shout it from the rooftops than now, when there is an obvious bi-partisan agreement on the need for one of the largest stimulus packages in recent American history.
Remember how, in 1993, as Clinton came into office,a stimulus package - very modest in size, about $30 billion, as I remember- was nixed by Clinton's own closest Wall-Street-beholden advisors? It was reported by Bob Woodward in his 1994 fly-on-the-wall book "The Agenda," a work that was fundamentally about Clinton's astonishing spinelessness as an excuse for a leader, complete with Clinton's obscenities when he reminded that Wall Street was the boss, not him.
But now that the fates of massively, recklessly unmanageable global Wall Street combine of big money center banks, brokerages, hedge funds, and investment banks are in the balance, a large stimulus package needs no forcing on our out-of-touch elite: there were smiles all around in the photo-op picture of the politicians announcing the 2008 stimulus package.
Sooner rather than later, Americans will have to become acclimated to an economics which asks "in what direction?" when we are told that "the economy" needs to grow. Nations such as Sweden - admittedly very different in scale in regard to their notions of government advocacy and in the size of their economies - have mostly resolved plannfully the recurrent problems of boom and bust engendered innately by the workings of a capitalist economy.
It is perfectly appropriate to insistently ask the question "Who will be doing the planning, and in whose interests?" A good progressive answer is that such planning is only permissible in an economically democratic and even egalitarian political culture such as we in the States have not yet achieved.
These are difficult issues for a political/economic culture like ours in America to address- economically elitist and authoritarian as it is in a 19th century fashion (a cultural time-warp throw-back we can thank Ronald Reagan and his entourage for refurbishing) , almost to the point that many people I know personally whose true incomes are decreasing by the year,still venerate the seemingly magically-endowed few who, like the hedge fund mogols featured in an April, 2007 issue of New York Magazine, (the reader of this post might try a Google search of [hedge funds April 2007 New York Magazine ] (no brackets)for some enlightenment) seem to almost to miraculously print the billion-dollar-yearly incomes they are reported in the financial press to have "earned."
But we Americans must address those planning questions - and moreover, we must set up the planning institutions which will be the real-life answers to those planning questions - within this generation - somehow with the bureaucracy we rightly hate so much kept to a minimum. And, we must eliminate the mythic worship of the super-rich which is part of our outmoded way of defining what it is to be an American in order to achieve the kind of sophisticated economiic egailitarianism most European cultures have had for most of the 20th century.
The proposals of the Economic Policy Institute are good stop-gap measures - but great, permanent changes must be made in the way whe think about the manufacture and distribution of "the goods and services" we value in life, and in the way we live in general, if we in the U.S. are to endow our posterity with a rationally and equitably planned economy.
A follow-up to my post of January 23, at 10:54 p.m.:
I searched the New York Times search engine, using the search terms [Clinton stimulus package] (no brackets) with a date range of January1, 1993 to December 31, 1993.
In fairness to Clinton, judging from the public record, from that search, it appears that his $31 billion stimulus package seems have been whittled down to practically nothing, then killed later in the year, rather than abruptly defeated, with help from the Republican Party which claimed it was loaded with pork-barrel projects - and with no great help from the New York Times, which published an analysis as early as February 19th - just weeks after Clinton announced his stimulus plan - implying that it could fail("Clinton's Economic Plan; Then Again It Could All Backfire," by Steven Greenhouse, Feb 19, 1993.")
The account Bob Woodward gave in "The Agenda" is different from the running record found in the Times archive; "The Agenda" as I remember, simply stated that Clinton was told by Wall Street that his plan wouldn't be allowed, then resigned himself to abandoning it. Maybe competent, unbiased historians will one day accurately judge to what extent Clinton did not support his overall stimulus plan enough.
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