What should government do to stimulate the economy?

by on July 16, 2008 at 6:20 am in Economics | Permalink

Let’s see what New York Times readers think.  Right now there’s only one comment and it’s not totally encouraging:

Triple the minimum wage.

That would bring it more in line with
increases in efficiency and rates in the late 70s. People make more,
they spend more. All the money is just tied up in investments now, like
bonds in Fannie and Freddie.

But surely the quality of the answers will improve as the day passes, no?  No?  No?

Help!

1 Daniel Corradi July 16, 2008 at 6:32 am

Greater tax cuts for the rich. Trickle down effect. Reaganomics!

2 DPT July 16, 2008 at 7:29 am

According to other NYT commenters: spending billions-trillions of dollars on infrastructure.

More entertaining suggestions I’ve noticed:

Tying wages to the GDP: Hmm, what a fantastic way to stimulate the economy during a recession. But it will show those darned CEOs what for!

Stopping the foreigners from taking our jobs and getting visas: Yup, OK, great plan.

Bringing soldiers home from Iraq: This would be good for the economy in the long run, but given these are all volunteer soldiers I don’t see how it’s of much help for avoiding a recession in the short-term. It’s not like WWII where there were labor shortages that demobilized soldiers fulfilled. Perhaps I’m wrong on the short-term effects of this one?

Nationalizing the oil companies and cutting defense spending by 75%: If I were going to nationalize the oil companies, I would INCREASE the defense budget. Because now we’re going to have a bunch of lovely wars to fight when we make all the overseas oil fields that are majority owned or backed by American corporations the property of our government. Or did he not think that one through entirely?

3 Stan July 16, 2008 at 8:00 am

If it were up to me, I’d pour money into mass transit. I’d try to make commuting by train into major American cities as easy as possible. I’d try to improve bus and subway service within our cities. I’d introduce congestion charges in a few major cities. I’d do everything possible to get people to drive less. I’d work as hard as I could to improve methods of burning coal without adding to global warming. And I’d pour money into improving our electricity transmission capabilities to allow electric power to be produced by fossil fuel and nuclear power plants in sparsely populated areas and used in population centers. I’d much rather do that than end the gas tax or send consumers another economic stimulus check or continue our stupid ethanol subsidies. That’s what I’d do.

4 Winslow Theramin July 16, 2008 at 8:16 am

What is really frightening is that these ideas are pretty much what these people expect to get out of an Obama administration, and they’ll be sorely disappointed if they don’t get it.

5 8 July 16, 2008 at 8:25 am

We could power the nation by burning paperwork and office furniture from the now abolished departments of education, commerce, health & human services, homeland security, and energy. Sell off the buildings. Open the continental shelf, Rocky Mountain region and ANWR to drilling and sell the rights. Privatize Amtrack. Privatize the Post Office following the Australian model. Sell off government land for carbon sequestration industries, i.e. logging. Use the savings from the abolished departments to abolish capital gains tax and invest in alternative energy and infrastructure.

6 MS July 16, 2008 at 8:36 am

I saw Steve Forbes on the Today show this morning, giving advice on what to do about the economy. One of his suggestions was to cut taxes. Really, it is as if there was no economic ill that lower taxes won’t fix.

7 jdetal July 16, 2008 at 8:55 am

Encourage telecommuting as a national agenda and with incentives such as a tax credit. It will induce spending for communications and pc equipment and reduce energy comsumption. Within a matter of weeks you could get 20% of the workforce off the roads and mass transit one or more days a week.

8 Andrew July 16, 2008 at 9:18 am

First, do no harm is a non-starter, eh?

I’m still convinced that we have an arithmetic recession. You add enough negative components together (housing and housing lending) and pretty soon you have zero or less. But, until oil kicked in, I don’t think there was an economy-wide hiccup.

Not even from an Austrian view, but just from common sense, why is spending better than saving? Why shouldn’t we have to readjust to the higher energy costs of a global economy?

Consumer spending hasn’t really dropped. It’s just being soaked up by gas costs. So, all we need is for business to believe that the economy will be better 6-12 months from now. I guess that justifies for some the government doing “something.”

Well, if we are going to run deficits, we might as well build roads and bridges and nuclear plants. It’s the housing construction people out of work, right? Financial people probably can get plenty of work helping companies with Sarb-Ox. Maybe the autoworkers can build buses to run on natural gas. That is, if doing nothing is completely out of the question. Maybe it would be good enough to announce it and once the economy picks back up, never go through with it.

9 Viren July 16, 2008 at 9:34 am

Double, triple, or quadruple the number of high-skilled immigrants that are able to come here each year.

10 j July 16, 2008 at 9:41 am

Let’s make the process of going into the US by plane more of a headache and unwelcoming. Mike “We don’t need no tourists” Chertoff loves any suggestions scaring away tourism.

11 Mark July 16, 2008 at 9:50 am

Pay young lads to go about town breaking windows of bakers’ stores.

12 katiet July 16, 2008 at 10:04 am

A shift in spending from things like Iraq to infrastructure spending, while overall slightly reducing the level of spending. Increased spending on mass transit. Keep interest rates low.

Make classes in financial literacy part of No Child Left Behind. Use it for something meaningful…

Of course, if that doesn’t work just cut taxes. We all know tax cuts always pay for themselves. Change the symbol of the bald eagle to a picture of the Laffer Curve.

13 Urstoff July 16, 2008 at 10:13 am

It’s nearly unanimous: a passenger rail system is the best way to prevent recession!

14 indiana jim July 16, 2008 at 10:48 am

If the Supreme Court would revisit and reverse the cases discussed in the recent book “The Dirty Dozen”, then the value of the representative U.S. corporation would probably at least double.

15 PFJ July 16, 2008 at 11:21 am

“Cap the price of oil (and gas) to discourage speculation”

Wow, outside of tripling the minimum wage, or the guy who said that China is proving communism works, that is by far the stupidest. My brain hurts after reading all of those comments.

16 Christina July 16, 2008 at 11:57 am

My comment to the NYT:

The government should give me a check for about $100 million. That makes as much sense as every other proposal I’m seeing in these comments. I weep for America. We are, apparently, a nation of economic illiterates and believers in the mythical Free Lunch.

17 Andrew July 16, 2008 at 12:31 pm

Off-topic, but related, since I think this is a financial services crisis and not a recession.

So, these banks are so big that noone is big enough to give them a loan. So, they need lots of loans, but noone will loan if they are going to go bankrupt. But, they won’t go bankrupt if they get loans.

It seems like these banks don’t need a bailout, they need a website. Sounds like a software problem to me.

18 Franklin Harris July 16, 2008 at 12:59 pm

What should government do to stimulate the economy?

The opposite of what polls say they American people would do.

Alternately, the opposite of what Lou Dobbs would do.

19 Speedmaster July 16, 2008 at 1:33 pm

“Pay young lads to go about town breaking windows of bakers’ stores.”

LOL, well-said!

20 Michael B. July 16, 2008 at 1:52 pm

Vote Quimby.

21 Andy July 16, 2008 at 2:41 pm

Isn’t a minimum wage of $X just discrimination against anyone whose work is valued at less than $X? Because such a person can no longer be hired.

22 jorod July 16, 2008 at 2:47 pm

Yeah, cheat people out of a decent education, then when they are only qualified to flip burgers and sweep floors, give them an increase in the minimum wage. Real socialist paradise…

23 Mike July 16, 2008 at 2:58 pm

Does this crisis need a fix? A month ago it seemed like the consensus among experts was that this would be a terrible stretch for housing and financial, and a standard recession for the economy in general. Am I underrating the problem if I don’t believe the economy is screwed?

24 PFJ July 16, 2008 at 4:09 pm

“The majority seem to consist of invest in alternative energy and build more infrastructure.”

Yeah, but you got almost as many comments that suggested that a much higher minimum wage, more protectionism, and higher taxes would solve all of our problems.

25 Nate July 16, 2008 at 4:51 pm

Could we strike a deal with Canada and Mexico to allow free travel, employment, and property ownership for citizens of all three within all three. Don’t know exactly how it would fix the economy exactly, but it would be pretty cool.

26 meter July 16, 2008 at 5:30 pm

Clearly the solution is to pay CEOs more, reduce capital gains taxes, and remove corporate and estate taxation completely. These poor, suffering people need more money to bestow on the rest of us.

Nothing stimulates the economy like maximum wealth disparity.

27 Cliff July 16, 2008 at 6:10 pm

Someguy,

“Sure some of that money comes back but I would guess only some small part.”

All of that money must come back, by definition. That is why the “trade deficit” is not a useful construct. We pay in American dollars, which can only be spent in America (exchanged for American goods/services/equity). Even if they get traded to another foreigner, eventually they must be spent in America. And if they are not spent, they increase the value of the remaining dollars because they have been taken out of circulation. Either way, the full value comes back to us.

28 josh July 16, 2008 at 6:38 pm

A government with a stimulus package is like a mule with a spinning wheel; nobody knows how he got it, and danged if he knows what to do with it.

29 SheetWise July 16, 2008 at 7:52 pm

I’m amazed that more people don’t embrace demand-side economics as a workable model. Those of you who are familiar with the trickle-up theory should understand.

More stimulus checks.

30 Devin Snead July 16, 2008 at 9:39 pm

Professor Rizzo:

The ordinary citizen and almost all politicians have no competence in this area. It is as if the Times were to ask its readers how to cure a specific disease or how to split the atom. We are not always conscious of this because the political system seems to give ordinary people the power (after interest groups and politicians have their say)to affect economic policy.

— Mario Rizzo, New York City

31 DaveinHackensack July 17, 2008 at 4:33 am

If the American Society of Civil Engineers is correct in saying that we’ll need to spend $1.6 trillion over five years to “maintain the adequacy” of our infrastructure, why not make a virtue of necessity and spend more of that sooner? It will create more jobs domestically than giving Americans more money to spend at Wal-Mart would, and it will do more to increase the longer-term productivity of the economy.

Another way to stimulate the economy would be to open up most of the outer continental shelf to energy exploration and production. That would spur a boom in the construction of oil rigs, etc., and it would create a lot of high paying blue collar jobs in the energy sector.

32 glenn July 17, 2008 at 6:40 am

Hand out 1 million green cards each year for University educated foreigners who invest at least $200,000 in a home for a 3 year minimum. The US is still the best destination for most foreigners. We should welcome those who want to come here.

Have a sliding tax on gasoline that guarnatees $4 erog allon minimum, with the tax going directly to R & D to sustainable energy: wind, solar, fuel cells, electrical, as well as more investments in infrastructure and mass transit.

Raise taxes on the very rich, and many of the rich agree with that.

33 Alan Brown July 18, 2008 at 3:09 am

Since inflation is wreaking (?) havok with the economy, lets create some more inflation by stimulating the economy. That’ll fix it.

Seriously, wealth is not created by conning people into buying more junk. Investments create wealth, not consumption.

But lets hand out money anyway. People can run down to Walmart and buy the latest thing from China and that will help stimulate demand for gasoline. Hey, its been working so far.

34 Rex Rhino July 20, 2008 at 3:17 am

Since I dont know much about economics, I need to ask the following.

If increasing minimum wage is so bad, I suppose decreasing it is very good. No?

So why not set it to say close to 0. Will that be great? So whats stopping greater prosperity for all is that we pay the poor way too much per hour? Those poor *** have been ripping us off all the while.

Well, this is a simplification, perhaps someone else can give a better explanation, but here goes:

Higher wages for workers isn’t bad. However, the government does not have the ability to increase the minimum wage. The government can only make it illegal to pay less than a certain wage. People who aren’t worth the minimum wage won’t suddenly start making more money after a government minimum wage increase, those people will lose their jobs.

A company has a maximum amount of money that they can/will pay for a certain task. A person has a certain minimum amount of money that they can/will accept for a certain task.

When a wage is above what the company can/will pay, the worker will go unemployed. When a wage is below what a worker can/will accept as payment, then the worker will go unemployed.

Of course, that is totally ignoring the fact that labor is included in the price of goods and services… so if you did somehow manage to see everyones income increase, you would expect the cost of goods and services to increase a corresponding amount: Instead of making $5 and hour and paying $5 for a burger and fries, you will make $10 an hour and pay $10 for a burger and fries… because you haven’t really increased the supply of burgers and fries, nor increased the productivity of workers.

There is no magic incantations that the government can do that will raise people’s standard of living. The government can’t make people’s real income increase by declaring a minimum wage, any more than it can make people live longer by declaring life expectancy to be longer.

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36 Heart Of Problem October 26, 2008 at 11:24 pm

To stimulate the economy fast, I think the interest rates should be cut to 0% or 1% for homeowners, and people seeking to purchase a home. Everyone deserves to own a home in this country, not just the landlords out to make easy money off of people. If the interest rates were cut to 1%, everyone would be able to afford a home, thus stimulating the economy and getting these homes out of the banks hands and into the hands of the people. People trying to get homes could afford to buy a 150,000 home at about 400 a month. They could then afford to pay their bills, AND stimulate the economy EVERY month by purchasing products. Also the Three Credit Reporting Agencies need to be taken care of by one database, our government, maybe they can make sure the information contained within is ACCURATE. Right now the information in the database is not accurate and needs to be investigated, they refuse to update false information, email address changes, false addresses on the credit reports etc… all harmful to credit score.
I think this is the HEART of the problem, yet no one understands this. Did you ever try to fix your credit? Did they ever listen to you and snowball you? Give you the run around?
Or maybe things could just remain the same in this country, and this entire CREDIT Problem will remain the same unless changes are made in this area as well. I am very rare in this country, I have student loans, and a loan for a washer, but thats it, not one credit card, I guess I’m not worthy for a home loan. I would be the most IDEAL person for a home loan, and I’m sure there are soooo many people like me that dont have debt that would love a home.

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