Whatever the size and scope of the economic stimulus package, "we do need to target the situation, which means jobs, and in many cases, direct job creation," says Emory economic expert Jeff Rosensweig. In an appearance on CNN, Rosensweig also said that incentives to businesses to create jobs directly and reducing payroll taxes are ideas that should be pursued.
All of these alternatives will result in a lot of debt both now and in the future, says Rosensweig, "but the sad thing is, I believe we have no choice. If the economy collapses, then no one's paying taxes and the deficit expands anyway."
Better accountability a must
Whatever the form and size of the Obama administration's financial stimulus, better accountability will be a must, says Rosensweig. Americans remain unhappy about the way the first round of bailout funds was spent. "The money was not accounted for," he says. "The future must be different." After all, he says, "It is our money."
Big Thinking Needed for Big Economic Woes
President Obama needs to keep thinking big in enacting economic stimulus, says Emory finance expert Tom Smith. "It doesn't save anybody anything by coming up $100 billion short on a stimulus plan." Smith, who teaches the practice of finance at Goizueta Business School, warns that "trying to save $100 billion on a stimulus package might be the difference between the road to recovery or six more months of recession."
Government investment in the nation's infrastructure through vetted projects that are ready now would give states latitude to direct funds to projects most likely to produce jobs, he adds. "The worst thing Obama could do is try to micromanage the situation."
In the debate over whether government spending or tax cuts is more effective in stimulating recovery, Smith says past recessions have typically included some of each. "In six of the last eight recessions there were tax cuts during or afterwards," which Smith says "are pretty useful tools, but you've got to think big. If a tax rebate is big enough you're going to get people to spend money." An effective tax cut might have to triple the 2001 rebate, "but it might be what we need."
Eliminate Payroll Taxes as Alternative to Government Spending
Emory economist Esfandiar Maasoumi believes that rather than large-scale government stimulus spending now being planned, a better alternative would be getting rid of payroll taxes. "It's a good way of borrowing without going to the markets right away," says Maasoumi. "It is a regressive tax, and eliminating it helps both employers and employees by $1,500 each immediately."
There are no collection costs, Maasoumi says, plus the measure could be enacted quickly, and would avoid the dangers of pork barrel spending and private sector fraud.
Maasoumi is no fan of government stimulus spending for a seriously indebted nation. He observes that President Obama was "mugged" by bankers and the financial industry before he even took office. "I am sorry for the president," says Maasoumi, editor of Econometric Reviews. "They [bankers] took what they could, betting their guys may not be in power to facilitate gradual taking. In my view, 'too big to fail' is the biggest fraud and extortion administered on this country."
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