Depoliticizing stimulus policy
By Dylan Matthews
It's in Wonkbook, but I wanted to highlight Laurence Seidman's op-ed on using unemployment level triggers as part of stimulus proposals. I could do without his requirement for balanced budgets when the unemployment rate falls below 6 percent, but this seems very sound:
Congress should enact a set of temporary tax cuts and expenditures to stimulate the economy. This legislation must contain a phase-down schedule so that these temporary measures are phased out as the unemployment rate, which is currently over 9 percent, falls below 9 percent, then 8 percent, then 7 percent, and are completely terminated when the unemployment rate falls to 6 percent.
In a way this is the flip side version of Alan Blinder's independent tax policy authority proposal, which would charge a group of Federal Reserve style technocrats with determining federal tax rates, accounting for need for stimulus, budget balance, equity and other factors. This uses a blunter mechanism than a panel of experts, but its priorities are also clearer. As we've seen with the Fed the past two years, the policy goal that Congress and the public value -- reducing unemployment -- is not an overriding concern for Fed officials. Having Congress trigger fiscal policy explicitly on unemployment figures would make sure the focus is on job losses.
The hard part would be putting a price tag on, and then passing this. Like TARP, it's something where the sticker price -- that is, the price if the bill's funds run out without any triggers being met -- is very high, but the likely price is much lower. But congressmen will likely decide based on the worst-case scenario, and, as we've seen in the recent jobs debate, won't consider the future revenue gains coming from stimulus-induced growth. Some assumptions going the right way at the CBO could help, but getting Congress to vote for a bill that looks a lot bigger than it will eventually be would be tough.
-- Dylan Matthews is a student at Harvard and a researcher at The Washington Post.
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