Tuesday, January 20, 2009

What Would I Do For the Economy?

Russ Roberts inspires...

So what would I do to stimulate the economy out of the recession? I would look for things that would have both an immediate positive impact that are also good for the long-run:
  1. Legalize drugs and prostitution: Bring the enormous amount of economic activity lost in space back into the legal sector, including all those off-shore bank accounts that would be injected into the banking system.
  2. Cut every labor regulation I could, including the minimum wage. The unintended consequences of these acts are too well understood for anyone with a good conscience to overlook. Enough is enough, these laws were written for the purpose of racist eugenics and sexism.
  3. More free trade, especially in agriculture: We should be buying much, much, more food from places like Africa and Asia. We should not be taxing households to pay American farmers not to grow food. Cheaper food and lower taxes mean more income for households.
  4. Eliminate taxes on businesses, tax household income more broadly at a flat (and preferably low) rate. Businesses either pay out their earnings to households as income or invest it in expanding their business. Taxing household income twice makes no sense. The later part is good for expansion, as is a simpler tax code without a bunch of exemptions. I would settle for a negative income tax at low levels of income, if you must.
  5. Cut the payroll tax.
Here is what I would NOT do:
  1. Pick an arbitrarily large number (say, $880 billion) and decide to spend it, with the projects to be determined later. No, No, No. If you are looking for spending stimuli (and plenty believe that can work, even if I don't), you look for projects that are worthy in their own right. Otherwise you are destroying valuable resources.
  2. Talk about depression and catastrophe every 5 minutes. Former President Bush, I'm looking at you when I say this. It's not great national defense policy, and it is terrible economic policy.
  3. Nationalize or bailout any firms.

6 comments:

Anonymous said...

Will you then regulate the drugs and prostitutes or allow them to self regulate?

unsilentmajority said...

All decent plans good sir.

Thomas said...

See, this is why no one takes economists seriously. They ignore all the important frictions.

Few (none?) of these are politically viable. _Maybe_ the tax changes. You would be kicked out of office before you could finish writing the bill.

Justin M Ross said...

Thomas: I suspect that Barack Obama's supply creates its own demand as of late. I didn't bother with political viability because that is always a cope out for people to dismiss good ideas. FWIW, I think Obama has the charisma to pull off each except #2, but I also suspect the actual policy choice will simply be another superficial popularity contest.

Anonymous: I wouldn't see much social benefit in the regulation, especially for prostitution. Information and reputation is already valued by consumers of those industries.

Matt E. Ryan said...

Having dealt with policy over the last couple of years, the way that Justin writes his desires is (for better or worse) the way that the game needs to be played. It's a bit like negotiation-- one side asks for huge taxes, we need to counter with none, and hopefully the resulting compromise is a marginal improvement. Rinse and repeat.

Jonathan Drake said...

Thomas said:
"Few (none?) of these are politically viable. _Maybe_ the tax changes. You would be kicked out of office before you could finish writing the bill."

This is case and point why political governments exist only to hinder an economy and should be allowed to fade into history. If economic growth/stimulation etc. is turned over to power-grubbing individuals who demonstrably ignore sound economic principles, then how can we ever hope to truly prosper? We are seeing the results right now of letting ignorant (probably willfully so) politicians control the economy...let's put two and two together and get rid of the whole bunch (a pipe dream I know, but that doesn't make it less true, or right, or worth it... ask the Founding Fathers if they thought going against impossible odds was worth it)