In my little blog post about bi-partianship I talked about the recovery not coming for at least 2 years and probably longer. Here is what I think concerning the economy, here is what I think the government should do outside of the normal functions of controlling the money supply and interest rates:
Do nothing.
That’s it, no stimulus, no bailouts, no directed loans. Let the business cycle work itself out.
This will of course not happen, there was (and is) an awful lot of money given by an awful lot of people in the hopes of getting a piece of government pie as Glenn Reynolds put it:
This is not so much a stimulus, as a massive transfer of wealth from the politically unconnected to the politically connected.
Given time the business cycle will work itself out. In fact if all we did was wait on the business cycle I suspect the recovery would come a whole lot sooner. One could if necessary one can provide some relief to individuals by extending unemployment and or increasing the earned income tax credit. (not my favorite choices but it would get money the people most likely to spend it to survive.) but large dough dumps to political friends when we don’t even know where the money goes aren’t going to do it.
If the Obama team was really smart they would make a much smaller bill with maybe the provisions listed above. If they absolutely HAVE to spend it on something a full going over of bridges and dams would be a good move followed by grants to state and local government for any needed repairs since the work needs doing anyway. Combine that with the unemployment and earned income tax thing and then stand pat. In under 4 years the business cycle would heal itself and he could rightly take full credit! Sometimes the smartest thing to do is nothing more than to keep a calm head.
Politically the instinct to do something dramatic is strong, the instinct to reward contributors is even stronger. (Particularly those contributors let in via the campaigns interesting use of credit cards) Given the president’s history of avoiding political risk it seems unlikely that he would resist these instincts assuming that he wanted to.
Well if one is going to offer criticism one should also offer a solution. This is mine.
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