Here’s how Andrew Samwick expressed the idea: Andrew Samwick and others have proposed a project bank that would maintain an ongoing list of needs for infrastructure and other public goods – there are plenty of unmet needs in this area – and put them into action when a crisis hits. (Stan Collender discusses a revenue sharing program linked to economic conditions that was created in 1980, but never funded.)Ī second big problem that could be addressed through a more automated policy process is in finding worthy, “shovel ready” projects that can be brought online quickly to stimulate the economy. But standard remedies – the equivalent of deductibles and co-payments in insurance markets – can help with this and keep the potential gaming at a minimum. One worry is that promises to bailout state finances will induce states to game the system. No wonder the stimulus package didn’t have more powerful effects.īefore the next crisis hits, we need to develop mechanisms to make federal help available automatically so that states do not find themselves in this position again. Because of this, contractions at the state and local level were so large that they offset the stimulus at the federal level to the point where the net stimulative effect was essentially zero. In the recent recession, some help was provided to state and local governments, but political fights blocked efforts in Congress to provide as much help as was needed.
Balanced budget requirements force state and local governments to either raise taxes or cut spending to offset budget shortfalls induced by a recession, measures that make the recession even worse. The first, and most important place automatic stabilizers could help is in reversing the automatic destabilization that balanced budget requirements at the state and local level bring about. Increased reliance upon this type of stabilization could help solve the political problems that prevent Congress from responding effectively when the economy is most in need of help. We need a better way of conducting fiscal policy, one that avoids the political fights in Congress that lead to delay and compromised, watered down policies, or to complete gridlock that prevents any response at all.Īutomatic stabilizers are a tried and true means of stabilizing the economy.
As Alan Blinder said recently, “I’m looking at the political system turning itself into a paralyzed beast.” Second, even when our economic problems are severe and righting the ship ought to be the primary concern, Congress is incapable of implementing fiscal policy with the timeliness and effectiveness that is needed. When the problems become large enough, fiscal policy must be part of the response. First, monetary policy won’t always be capable of stabilizing the economy on its own. The economic crisis has made two things clear.
0 kommentar(er)
