January 17, 2008

Bernanke and the magic stimulus package

You know, from the Democrats AND the Republicans there is nothing but bullshit flowing regarding economic stimulus and that what needs to happen. $10 bn for unemployment benefits. $30 bn for mortgages. $5 bn for lollipops and puppies. Everyone likes puppies.

It's all too little too late and it's mostly a band-aid, even if the Fed Chair is loving all over the plan right now. This money coming down the pipe for homeowners who were taken advantage of? That's only going to delay the inevitable... they need to refi and the only way they are going to be able to do that is substantive changes to FHA to allow these people to convert their subprime loan into a government insured loan at a lower interest rate. The problem isn't that these people can't pay a mortgage, it's that the 2/28 ARM they thought was such a good idea is turning into a nightmare and they have to get out it.

All this is really a sidenote to the real issue which is a complete lack of growth in real wages at a time when the cost of everything continues to escalate. For that, there is tax policy but the R's, regardless of common sense, will not let that through because it violates that supply side ideology of which they're so fond.

Here are some other things we need to think about doing... all this is spending, even if deficit financing is needed, that'll create jobs here boosting our economy and tax receipts.

  • Infrastructure investment - We need at some massive investment in our transportation infrastructure from Washington to keep privatization off the table and spread the burden of improvements evenly. The great part about this is that this is money spent to improve the growth capacity of our economy. It also dumps money into the people who will work on the project, tightening the labor market, improving consumer spending and increasing wage growth.
  • Alternative fuels crash program - We really needed this to start in October, 2001 but with el Presidente was too focused on not capturing Osama bin Laden. We need to dump money into R&D on alternative fuels and begin a crash program to get us off as much petroleum as possible through the Brazilian model (sugarcane ethanol). This will alleviate our short term problem (too much money being sent overseas) and the R&D will help us take the next step to energy independence, probably with algae.
  • Now, how to pay for it? Easy. Bring the marginal tax rate up on the upper bracket to 42% from 35% today and eliminate the capital gains tax cut which is really a boon for speculators that have been running wild in the commodities markets.

    Do all this and you'll stabilize and begin to rebuild the middle class.

    Posted by mcblogger at January 17, 2008 10:29 AM

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