Proposal: Stimulus & Deficit Reduction

There is no conflict — absolutely none — between our twin goals of putting the economy back on its feet and reducing long-term deficits. On the contrary, government could take many steps that would serve both goals simultaneously.

-Robert H. Frank, Economist, Johnson Graduate School of Management at Cornell University


I am total agreement with the statement above. You can simultaneously stimulate short term and reduce longer term debt.

It is a question of timing and emphasis, not mutually exclusive goals.

Towards that end, economist Robert Frank makes several thought provoking suggestions for doing both. If you recognize Frank’s name, its because he co-wrote a text book, Principles of Economics, with some dude named Ben S. Bernanke.

Frank’s approach to stimulating the economy and reducing the Federal deficit are broad based. Some are pretty standard, like increasing public investment in infrastructure, such as roads and the electrical grid. He also advocates a VAT surtax on extremely high levels of consumption, to be phased in slowly, on $500,000 per year or more of spending. “This would reduce long-run deficits while stimulating extra spending immediately” he notes.

But several of his other suggestions are more cutting edge. He thinks we should create a program to restructure consumer debt:

“Although rates on 10-year Treasury bonds are only about 3 percent, many consumers still carry tens of thousands of dollars of credit card debt at 20 percent or more. This burden has been a continuing drag on spending. The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.

With their debt service payments cut by more than half, consumers could increase spending immediately. And the five-percentage-point spread on money lent under the program would help cover its administrative costs, and maybe even relieve short-run government budget pressure.”

Interesting concept. We have thrown so much money at banks, this is a way to help ordinary citizen consumers.

Most of the Carbon tax schemes are designed to help the environment. But Frank’s approach is designed to be economically stimulative. His cap-and-trade system would be gradually phased-in, and only after the economy has again reached full employment.

Frank argues this would stimulate a huge jump in private investment immediately:

“Why? Investment is currently depressed because companies can already produce much more than people want to buy. But once a carbon tax was announced, the design of nearly every existing machine or structure that uses or produces energy would be rendered suddenly obsolete. Motor vehicle engines, electric power plants, refrigerators, air-conditioners, furnaces — all would have to be redesigned for greater efficiency.

The resulting flood of research and investment would enhance our ability to cope with future energy shortages and would serve another crucial purpose. Taxing carbon could eliminate the catastrophic risk of vastly rising global temperatures by the end of this century; it would be a prudent act, quite apart from its utility as an economic stimulus.”

And, this adds nothing to the deficit, as the spending is private sector driven.

Of course, any sorts of these plans could only be passed in a nation that was a Democracy. That is a form of government where policies are debated by the populace, then voted on by their elected representatives on behalf of the citizens. That was the form of government the United States was in the earliest portion of its history.

No longer. It has since become a Corporatocracy: An elected Parliment of Whores who work on behalf of corporate interests. Any idea that conflict with those corporate interests, regardless of how innovative or potentially useful, don’t stand much of a chance . . .


The Choices That Pay Us Back
ROBERT H. FRANK  NYT, July 2, 2010

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