TBO.com - TBO is Tampa Bay Online

Ideas To Jolt The Economy

ADVERTISEMENT

The Washington Post

Published: November 4, 2008

With Congress considering a new spending package to get the economy moving, think tanks and lawmakers are tossing out stimulus proposals faster than their aides can pump out news releases. Here are some outside-the-Beltway ideas to supercharge the nation's economy.

PUT AMERICA ON SALE

The Thinker: Laurence J. Kotlikoff, Boston University economics professor
In Action: Handing out stimulus checks is a bad idea because people tend to save the money.

Kotlikoff's solution: He wants state governments to suspend sales taxes, with the federal government picking up the tab. The feds, under his plan, would pay states 5 percent of the 2007 consumption amount of their residents.

Downsides: During debate over such a plan, people might hold off on purchases. Some economists think we need to encourage more saving, and that people hoarding stimulus cash isn't necessarily a bad thing.

A TRIGGER FOR RENEGOTIATION
The Thinker: Luigi Zingales, University of Chicago economist

In Action: Weakness in the housing market is a major drag on the economy.

Zingales's solution: Homeowners could automatically renegotiate mortgage terms when prices in their area fall more than 20 percent. Lenders would have to reduce the face value of the mortgage by the amount houses in the area fall in value, according to an index of prices in the given ZIP code. If a homeowner sells a house later at an amount above the new mortgage level, the lender and homeowner should split the profit.

Downsides: People not at risk of foreclosure may take advantage of the plan. Also, if homeowners get only 50 percent of new equity created, they have little incentive to increase the value of a home by making improvements.

BOLSTER FANNIE AND FREDDIE

The Thinker: Carl Goldsmith, chief investment officer of Berkeley Capital Management
In Action: Goldsmith said he is "fuming" that the government has spent billions of dollars trying to avoid foreclosures but has not managed to encourage home purchases.

Goldsmith's solution: A full nationalization of Fannie and Freddie - going beyond the $200 billion the government has invested in them. Doing so would let them borrow at the same rates as the U.S. Treasury.

Downsides: Nationalization could have negative consequences for the federal balance sheet. The government would need to take on about $5 trillion of mortgage-backed securities, most likely damaging its credit rating.

SOCIAL SECURITY INCOME FOR ALL

The Thinker: Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College

In Action: Papadimitriou also wants to encourage growth through consumer spending.

Papadimitriou's solution: By suspending worker Social Security contributions, he said, the government would effectively boost employees' take-home pay and pump billions of dollars each week into the economy. Under his plan, contributions to Social Security wouldn't pause; they would just come from the federal government's coffers. Companies would continue making contributions.

Downsides: Over six months, the plan could cost hundreds of billions of dollars. Even the perception of a shortfall in Social Security coffers could prove politically untenable.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT