The attempt to relieve the economy from what many see as an inevitable recession by using a stimulus package is not a very practical idea, says Stuart Greenbaum, the former dean of the Olin Business School at Washington University in St. Louis.
Whether proposed by the House or the Senate, the Democrats or Republicans, Greenbaum feels there are more efficient, long-term solutions to turning the nation’s economy around than giving people tax rebates. What follows are some of his comments on the subject:
“While I’m confident we will have some kind of package, I’m not at all sure it will do much good. Think of it, $150-200 billion on a $17 trillion base. Moreover, its design seems more political than economic. The rebates under consideration will take months to be distributed.
“However, an extension of unemployment benefits and an increase in food stamps could be effective in weeks, and they would more effectively generate consumption expenditures,” Greenbaum said. “I’m struggling to understand how a $500 tax rebate tempers the behavior of a family that has suffered a $20,000 or $30,000 loss in their home, not to mention a hit to their 401K, and a $300,000 potential increase of a couple percent on their mortgage.”
Greenbaum has his own suggestions to help fix the problem; he’s not just criticizing others. The changes he would make include:
• Continue with an aggressive monetary policy—keep rates falling and liquidity abundant.
• Focus the fiscal stimulus on those most in need because they will most assuredly provide the largest spending kick per dollar of stimulus. This means rebates plus extended unemployment benefits plus expanded food stamps.
• Empower Fannie Mae and Freddie Mac to expand mortgage purchases, including more and larger mortgages.
• Announce the beginning of planning a massive infrastructure renewal program covering roads, bridges, public transportation and the environment.
• Eliminate the misguided corn ethanol subsidies and import tariffs. which will surely cause food prices to fall. At the same time, increase taxes on gasoline to promote conservation.
• Announce a similar commitment to expand federal investment in urban education and universal healthcare coverage.
Greenbaum explains the thinking behind his suggestions: “In times of stress, perspective is everything. We are negotiating through a period of heightened volatility, uncertainty and vulnerability. The focus of too many politicians is myopic. We are all frantically pursuing a short-run fix for symptoms that trace back a decade or more. Yes, we need a program for short-run, but we need to remember that tomorrow there will be another, new short-run to confront. Indeed, the long-run is nothing more than a concatenation of many short-run events.”
Editor’s note: Stuart Greenbaum is available for live or taped broadcast-quality interviews using Washington University’s free VYVX or ISDN lines. Please contact Shula Neuman at (314) 935-5202 for assistance.