Yes, We Can Make the Stimulus More Stimulating

Dean Baker
Truthout, January 12, 2009

See article on original website

President Obama could not find any economists who were able to see the housing bubble for his economic team. Fortunately, he indicated that he would be willing to listen to those of who did in designing his stimulus package.

In response to his request for ideas on how to make his economic recovery package more effective, I have put together the following list of 7 proposals. This is a mix or match list, intended to be added to the list of items already suggested, although given the severity of the downturn, all of them could probably be included without causing concern about excessive deficits.

1) Extend health insurance

Offer a $2,000 tax credit for any firm that gives health insurance to employees not currently covered. Match at a 70 percent rate any improvements in health care coverage (e.g. lower employee premiums) up to $1,000. If 20 million workers get coverage, this will cost $40 billion a year. If another 50 million workers get added benefits that average $800 per year, this will cost the government another $28 billion for a total cost of $68 billion a year.

This would be a great first step towards universal coverage. If President Obama also allowed employers and individuals to buy into a Medicare-type public plan, then he will have gone a long way towards reforming the health care system.

2) Publicly funded clinical trials

Start a system of publicly funded clinical trials. The point would be to take the conduct of trials out of the control of the drug industry so that doctors and researchers would have immediate and full access to all research findings. See this and this.

As a quid pro quo for paying for the trials, the government would get control of the licensing of the patent. The drugs developed through this system would all be sold as generics costing somewhere near $4 a piece at Wal-Mart. The payback from this would be enormous, instead of spending $330 billion a year on prescription drugs in 2012, we might spend closer to $30 billion. We’ll be paying $30 billion a year or so for clinical trials, and maybe close to that much in licensing fees, and getting much better medicine.

And, as a side-benefit, people in developing countries would get cheap drugs too. We could put an end to “free-trade” agreements that try to jack up drug prices in poor countries through stronger patent protections.  Total cost $30 billion a year.

3) Cash for clunkers

Princeton economist Alan Blinder recently argued in the NYT for a program of buying back older, more polluting cars at a premium over their book value. This would get the most polluting cars off the road (raising average full efficiency) and put some money into the pockets of the people who own them. Most of these car owners will have low and moderate income, so we will be putting cash into the hands of people who need it and will spend it. Blinder calculated that we can get 5 million older cars a year off the road for a cost of less than $20 billion a year.

4) Subsidies for public transportation

People in the United States take more than 10 billion trips on public transportation each year. This has enormous environmental benefits. Not only are these people consuming much less energy by using public transit, but by not driving themselves, they are also reducing congestion, and therefore reducing the amount of energy wasted in traffic jams.

The government can encourage public transit and get money into the pockets of the people who use it (disproportionately low and moderate income people), by giving a $1 subsidy for each trip that gets directly passed on in lower fares. For someone taking a subway or bus twice a day, this will amount to savings of $500 a year. The government can include some additional funding to buy more buses and train cars. The cost would be approximately $13 billion a year.

5) Funding for writers/artists/creative workers

In the New Deal there was both a federal arts project and a federal writers project. These programs employed thousands of young artists and writers. A creative stimulus package can extend this idea for the Internet Age. Suppose that President Obama made $10 billion a year available for state and local governments to support various types of creative and artistic work. This could include music, movies, writing books, even journalism. The one condition for support is that all material be made freely available in the public domain. (Better yet, it could have copyleft protection.)

This funding would be sufficient to employ 200,000 people a year at an average of $50,000 each. This would put an enormous amount of creative work in the public domain that people all over the world could download at zero cost. In the first year or two, we could have this program administered through public agencies, but in later years we can have people choose for themselves which work they want to support through a tax credit. The cost would be approximately $10 billion a year.

6) Funding for the development of open software

In the same vein, the government can spend $2 billion a year to develop open source software. This money can be used to further develop and simplify open source operating systems such as Linux, as well other forms of free software. The payoffs from this spending would be enormous. Imagine that every computer buyer in the world would be able to get a computer for which the operating system was free, as was almost all the software that they would ever use.

This would surely save consumers an average of at least $200 per computer. With sales at close to 20 million a year, the savings in the United States alone could easily exceed the cost of supporting software development. Adding in the benefits (and presumably some contributions) from the rest of the world, we will be way ahead by going the route of publicly funded open software. The cost would be $2 billion a year.

7) Pay for shorter workweeks and more vacations

The United States lags the rest of world in that its workers are not guaranteed any vacation time, sick leave, or family and parental leave. In Europe, five or six weeks a year of paid vacation is standard. Also, all Western European countries guarantee their workers some amount of paid sick leave and paid parental leave.

The stimulus gives us a great chance to catch up with the rest of the world. The government could make up the pay for two years for any paid cutback in hours, up to 10 percent of total hours worked in a year and $3,000 per worker. This means that if a firm offered workers who previously had no paid vacation five weeks of vacation a year, the government would provide a tax credit to pick up the tab, up to $3,000 per worker. Similarly, if they extended 10 days of paid sick leave, the government would provide a tax credit for the amount actually used. If employers of 70 million workers (half of the labor force) received an average tax break of $2,500, the cost would be $170 billion a year.

There are undoubtedly other items that should be added to this list. As President Obama’s Chief of Staff, Rahm Emanuel, said, we should not allow this crisis to be wasted. We should not be trying to just bring the economy back to where it was before the housing bubble crashed. Rather, we should be looking to create a cleaner, fairer, better country. Not all of it will be accomplished with the initial stimulus package. Not everything will even be accomplished in President Obama’s first term.

The real question is whether the country can do better than the modest stimulus package that has been laid out thus far. President Obama knows that we can.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.