Saturday, September 4, 2010

Stimulus Package?

The Obama administration is preparing a plan to address the country's anemic job situation, but has ruled out another major stimulus package.

With the elections coming up in November, even a modest proposal could be hard to push through. The Republicans have not signaled that they are willing to cooperate. However, many analysts believe that a new stimulus package is necessary to ward off a double dip recession.

As I have argued previously on this blog, the economy is not really in any condition for corporations or small businesses to lead a recovery. The old system that got us into this mess is still very weighted down in debt. We saw what happened to the entire nations of Iceland and Greece, and to massive corporations like Lehman Brothers. Banks have huge loans from these types of debtors along with vast number of smaller bad loans, for example, all those distressed homeowners.  The financial markets will take a long time to unload this bad debt and that will mean that businesses will have difficulty getting loans. What has driven the economy up to this point since the start of the economic meltdown in 2007 is the federal stimulus package.

As the old stimulus plan winds down, we may see things like unemployment begin to rise quickly again. To avoid this the government will need to act again either now or after the elections. In the end, though, we will need something more than just economic stimulus if we want to reform the system. The last thing we need is to return to the old ways of doing things -- the bubble economy.

The current tax regime is not sufficient to fund the government, and yet government services are far from excessive. Thus, there is only one alternative even though no one wants to raise a voice on this issue. Revenues have to increase, and that means the tax system has to be restructured. We need to look at alternatives like an annual land value tax and a value added tax (VAT) that hold the promise of even replacing income taxes for the vast majority of Americans.

We should also look into creating an economy and society that is no longer tilted in favor of big business interests. One area that looks promising is a basic citizen’s income that could replace our means-based welfare system. A universal basic income would probably meet less resistance from conservatives compared to welfare since it is not means tested. Such a system would provide citizens with a safety net against corporate whims and economic bubbles. The consumer economy would be stronger and more stable, and, in the end, there would be less need for stimulus packages or other government intervention.

For now, though, we have to hope that a new Obama stimulus package is in the works if only behind the scenes.


Derek said...

Those are sensible ideas. However to implement them would require so many toes to be trodden on in the civil service and the current land-owning "aristocracy" that it would involve a herculean political effort to implement them. The last time this was seriously attempted in a western democracy (Denmark 1958-60), a ferocious media campaign killed it stone dead, despite the fact that it was working as advertised. I have little doubt that an equally ferocious campaign would be mounted against it in the US, if the small numbers of the elite who would be worse off as a result of implementation, thought that there was the slightest chance of it being considered. This is doubly sad since it is one of the few measures that would have a chance of cleaning up the current economic mess and probably the only one that could do so without adding to the government deficit.

Paul Kekai Manansala said...

Derek, interesting comment about Denmark. The country is one of the most progressive in Europe and Danes often appear in lists of the world's happiest people despite a 50 percent income tax rate combined with a 25 percent VAT.

Doesn't surprise me that they would have tried to go one step further.

I think the key is to work gradually to wear down the influence of the land-owning "aristocracy."

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