Economic Badness

By Hal Canary, 2009-09-16 11:42:54 (link)
#economics

We may be out of the recession (in that gross domestic product is no longer shrinking), but with a growing population, people delaying retirement because investments failed, and increases in productivity (GDP-per-worker) unemployment rates will continue inching upward. The stimulus package was not big enough to return us to full employment. So once the stimulus spends itself out next year, we may be in worse shape.

What do we need to do?

1) Fix the fundamental issues with our economy.

1.a) Encourage energy efficiency with a Pigovian tax on carbon emissions. This will reduce energy imports, help our trade deficit, and bring jobs home. Instituting a border carbon tax adjustment will help.

1.b) Keep health-care from rising more. Subsidize health-care for the lower-middle class. Regulate health insurance to get rid of the preexisting condition unfairness. Nationalize the insurance companies if they refuse to play nice.

1.c) Insure the insurers. Just like the FDIC insures banks and charges a premium to pay for potential bailout costs, do the same for insurance companies. Call it the Federal Insurance Insurance Corporation (FIIC). So even in the worst disasters, where insurance companies can go bankrupt, there would be an institution that can step in and make things right. The FIIC would refuse to re-insure a company like AIG , keeping it from becoming too-big-to-fail.

1.d) Get serious about other reforms of the financial markets. Does the financial system really deserve to make such huge profits? Do they add that much value to the economy as a whole? You will know that a financial system is properly regulated when investment bankers make the same salary as an accountant.

2) Continue with the monetary stimulus until we see real indications of inflation. So far, there are no indications, so we are not printing cash fast enough.

3) A new fiscal stimulus bill big enough to close the unemployment gap within 12 months. If we paid people to dig ditches and fill them back in, that would have the desired effect, but we can do better. Let us invest in more energy-efficiency projects, like the cash-for-guzzlers program. Let us start with a high-speed rail from Miami to Montréal. I know it is not shovel-ready, but it could be if we threw enough dollars and workers at it.

4) I have said it before: Short-term cyclic deficits are good, long-term systemic deficits are bad. We need to get rid of the our systemic deficit. I do not think we can reign in spending. Left-wing Democrats have got to realize that we have to be the world's policeman and that is not going to be cheap. And Republics should (but will not) admit that wars and defense spending must be paid for with taxes on the rich. Running a federal deficit during the bubble years was inexcusable. In fact, higher taxes would have kept the bubble in check, to some extent. So we should immediately pass higher taxes on the highest bracket, along with a provision that they will be automatically reduced to current levels for as long as national unemployment is over 6%.

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