Saturday, October 15, 2011

Yalies get it right, beat Harvard


...Economist Richard C. Levin, who is also president of Yale University, suggested that since Congress hasn't been able to take action to combat unemployment, a standby independent commission, similar to the Federal Reserve, should be created to make some fiscal policy decisions when the unemployment rate reaches a certain level. He said that during that 5 percent of the time when the Federal Reserve lacks the tools necessary to improve the economy, an independent commission probably would be a more effective arbiter of fiscal policy than Congress.

"You have to put a very large fraction of the blame on Congress for not acting," Levin told The Huffington Post before the panel discussion.

Some of the economists said that if economic growth does not improve, the Occupy Wall Street protests could transform into social unrest on a scale similar to that of the 1960s and 1970s....
Read the whole article at The Huffington Post, U.S. Economy Needs More Federal Spending, Yale Economists Say

6 comments:

beowulf said...

We have enough govt agencies, its simply a matter of Congress coordinating the actions of the ones we already have. For example, Congress could set a formula for IRS to adjust FICA tax rate inversely to BLS's monthly U3 rate update.

Likewise, if Congress enacted a net asset tax (think of it as an annual estate tax) but pegged tax rate to 3 month T-bill rate, every T-bill auction would become an opportunity for the wealthy to drain reserves even as they bid down their tax rate to 0 (if the goal was to actually raise revenue, you'd tie tax rate to Fed's FFR target).

Tom Hickey said...

Beowulf, couldn't the Fed just could do it directly, since employment is one of its mandates.

beowulf said...

No, any change to tax laws has to go through the congressional tax committees, House Ways & Means and Senate Finance (where Max Baucus can be relied on to foul it up).

Of course, the real purpose of the net asset tax would be to keep interest rates at 0, you'd get to the same place if Congress (or the Fed and Tsy by agreement) made current 0.25% FFR target permanent.

Tom Hickey said...

Yes, I realize that. What meant was couldn't the Fed do it some other way that doesn't involve direct fiscal policy falling under Congress? You have come up with work arounds before.

beowulf said...

The rub is only Congress can appropriate new spending. But raising revenue, yes (to pass through to Tsy); the Fed governors could mark up their existing transaction fee schedule.
http://www.federalreserve.gov/paymentsystems/pfs_feeschedules.htm

The Fed could buy up mortgages and offer automatic refis but the FHFA dirctor, a Bush holdover, seems to be blocking that. The Fed,in cooperation with Tsy, could create a dual exchange rate system (as Ravi Batra has suggested) to close our $550-600B trade deficit, a demand leakage that cuts 3%-4% off GDP every quarter.

Finally, if the President wanted to throw the long bomb, there's a section of the Obamacare law allowing him to open up Medicare eligibility to everyone by executive order-- he could use airborne radiation from Fukushima as the necessary "environmental health hazard" hook. The waiver authority, appropriations and exemption from budgetary caps are already in place.
http://www.frumforum.com/how-to-fix-obamacare#comment-345423

beowulf said...

Oh yeah, the Fed could create a 13(3) facility for States to fund infrastructure projects with long term loans fixed at current overnight rate. Wouldn't be on-budget for Uncle Sam and the states all use capital budgeting.