ECONOMIC STIMULUS -- GOOD AFTER THE MORNING AFTER?

by Peter Bearse

The "economic stimulus" package thrown together by the President and Congress has been rushed through the House. It now proceeds to the Senate. The stimulus is analogous to a "quickie." Will the Senate, whose members are enabled by 6 year terms to take a longer-term, sometimes wiser view, improve the quick fix? Not likely, but let us hope for more delayed rather than instant gratification.

Any short-term package needs to be crafted so that it does not adversely affect the economy's long-term prospects. Is it more than Congress' usual over-reaction to events and media hype? What's needed so that the stimulus amounts to more than bribing people to spend their own tax money, adding the bill to the already huge overhang of the federal deficit? What more far-sighted ingredients have been left out?

We live in a new age of entrepreneurship, innovation and science-based economic development an age in which conventional economic approaches may not work. What about more entrepreneurial approaches?, such as:

1)     Treating the economic downturn as an opportunity, not just to spend but to invest  "to begin to work down another huge overhang" of the country's unmet "infrastructure" needs for roads, bridges and public facilities. This would also add millions of jobs to the stimulus mix. Federal dollars should go to state and local governments that have projects ready to go.

2)     Beginning to solve the Social Security problem, also basically an investment issue by beginning to invest some of the Social Security funds into new, growing business enterprises. New, young and small enterprises are the greatest sources of job creation and economic growth.

3)     Providing greater incentives for private investment in new, science and technology-based enterprises, such as:  Further cutting the tax rate on capital gains; and providing tax credits for patient money placed in new or early- stage venture investments.

After all, a fundamental economic problem faced by our country is not consumption; it is investment. We suffer from over-consumption and under-investment. We've let foreigners finance our overspending. We've put our country at risk. China is holding billions of dollars of our currency and additional billions of dollars of our bonds. When you next go to Walmart or Hallmark, look at where the goods you buy are made. Most are made in China. So, when you try to put the Congressional rebates to work, at least try to buy American.

Peter Bearse, Ph.D., International Consulting Economist, Fremont, 1/31/08