Tuesday, December 2, 2008

Creative idea for a stimulus package:
Let me get this out of the way first: I completely agree with what Professor Greg Mankiw wrote about high yield public investments. He said it perfectly, http://gregmankiw.blogspot.com/2008/12/passing-buck.html
One thing all economists agree on: If there are public investment projects that pay a high rate of return, those are worth paying for, even if it means more borrowing. But that is always true. Even if we were at full employment and there were no possible employment effects of fiscal stimulus, we should undertake public investments that pass a cost-benefit test.
In this regard, two observations come to mind. First, since most infrastructure is used locally, the proper level of spending is best determined by state and local governments rather than by the federal government. Earlier, I suggested that fiscal stimulus could be decentralized. Each state governor could be allowed to determine whether to take federal money as state aid or have it paid directly to his or her state's citizens as tax relief. I still think that makes sense.

Second, more public projects would pass a cost-benefit test if we repealed the Davis-Bacon Act. This law requires contractors on these public projects to pay "prevailing wages," which are typically union wages well in excess of what would occur in a free market. If the government paid market-determined wages for infrastructure projects, we could have both more infrastructure and less government debt. Without doubt, that legacy would benefit future generations.

I asked Professor Mankiw about income inequality earlier this year and he was gracious enough to respond. Professor, if by some odd chance you reading this – thank you so much, you are an inspiration! He told me that the problem with income inequality is the gap between skilled workers and unskilled workers. The highly skilled workers get good jobs, keep them, and have high wages. The unskilled workers don’t get good jobs at the same rate as skilled workers, have trouble keeping them, and their real wages are either stagnant, barely rising with inflation, or decreasing. The problem is that our educational system is not producing enough skilled workers, or to say it a different way, our education system is not properly “skilling” our workers. (And here I thought they made Kosher laws to cover that)!

So here is my humble idea. Instead of throwing money at bridges to nowhere, or to bailout states that have been fiscally irresponsible, why not address the stimulus package to reform/strengthen the American educational system?

Here is how it would work. Create regional (I have not figured out the right size and number of institutions but for now my idea is as follows) massive hybrid technical and liberal arts universities. These universities work with corporations, small businesses, entrepreneurs, etc, to figure out what jobs are in the region, who is hiring, and most importantly what they what, skill wise, out of workers. Any donation to the school from a corporation, or person is 100% tax deductible… The universities also coordinate internship opportunities on a greater scale than what we are accustomed to or have seen. Government is supposed to serve the people – this is a way of helping the market get what it wants and at the same time create massive stimulus through hiring professors, instructors, creating new buildings, new roads, sales of technology etc. Everyone gets helped. You could also use the stimulus to help people pay for enrollment. Now… the problem is how do you fund these institutions in the long run?

So far in this plan we have already made any donations completely tax deductible. I would also suggest letting corporations take a tax deduction for any individual’s education they pay for or sponsor. Lastly, perhaps you could lower the corporate income tax and the small business income tax (I know two different categories) by 8% (or some other number), and allocate 2% of the corporate tax and business tax (I know it is IIT) income to pay for the schools. This way businesses have extra money to hire the workers they are partially paying for to train. You could also fund these programs through some sort of low rate consumption tax…

I’m not a Keynesian but I think this is an interesting idea that might work for three reasons: 1) it addresses long term growth and short term stimulus, 2) it creates market transparency, and 3) I think it would pass a cost – benefit test.

1 comment:

Agora Kytsis said...

Dumbest Post Ever... Apart from that mess on the Big 3 Bail Out just below this.

Corrections Below.

1. "He told me that the problem with income inequality is the gap between skilled workers and unskilled workers. The highly skilled workers get good jobs, keep them, and have high wages. The unskilled workers don’t get good jobs at the same rate as skilled workers..."

Rebuttal:
The beauty of the American system is the ability for anyone to better themselves. It is the individuals choice to do so, and thus there is a market for all types of training schools and institutions for anyone that is unskilled/dropout/etc. to start the process

In addition it should NOT be the government's responsibility to eliminate "unskilled" work, that is the responsibility of the individual who is unskilled.

Any economist and/or businessman/businesswoman worth their "weight", KNOWS that 3% of any given population is completely unemployable. That group consists of the mentally handicapped, psychologically handicapped, etc. The other bottom of the rung jobs, are held by either entry level workers OR individuals with mental issues and/or addictions who cannot hold a job long enough to turn it into any sort of career, thus improving their circumstance.

2. "The problem is that our educational system is not producing enough skilled workers, or to say it a different way, our education system is not properly “skilling” our workers."

Rebuttal: OK... I'll provide a business/economics analogy to correct the assumptions here.

Once, an individual asked about standards within education, and the ability of educators to bring all individuals up to at least a certain level of success (ignoring all bell curve & statistical principles). Being a grocery manager, I asked this individual "When a shipment of strawberrys arrive and some arrive bruised, damaged, and spoiled, what do you do?" "Well," he said, "I send them back." Correct. "Educators can't send back broken kids. When students arrive broken, bruised, battered, damaged from divorce, broken from abuse, handicapped, and mentally disabled, they can't send them back and just keep the 'good' kids -- those that will succeed as "skilled workers". Educators are told that all kids must be able to leap over 'this' bar, regardless of if they have the legs/mental capacity to understand what the bar is and then to do so."

3. "why not address the stimulus package to reform/strengthen the American educational system?"

Rebuttal: Yay! More Central Planning!

4. "Create regional (I have not figured out the right size and number of institutions but for now my idea is as follows) massive hybrid technical and liberal arts universities. These universities work with corporations, small businesses, entrepreneurs, etc, to figure out what jobs are in the region, who is hiring, and most importantly what they what, skill wise, out of workers. Any donation to the school from a corporation, or person is 100% tax deductible… The universities also coordinate internship opportunities on a greater scale than what we are accustomed to or have seen."

Rebuttal: Um, this IS THE CURRENT SYSTEM!! Open your eyes, please.

5. "Government is supposed to serve the people..."

Rebuttal: NO, that is not the principle of the American Republic Experiment. The government isn't supposed to interfere in it's citizens lives in any way... whether it be to serve, or not. By serving the people the government must TAKE from the people to serve others or all... That, my friend is Central Planning and it is branded under the terms of Marxism, Communism, Collectivism, Socialism, etc., regardless.

6. "Any donation to the school from a corporation, or person is 100% tax deductible…"

Rebuttal: Someday, you might just make enough contributions to itemize your deductions; rather than opting for the standard. When you do this, you'll realize that any donation -- as long as its a donation IS 100% TAX DEDUCTIBLE.

7. "Lastly, perhaps you could lower the corporate income tax and the small business income tax (I know two different categories) by 8% (or some other number), and allocate 2% of the corporate tax and business tax (I know it is IIT) income to pay for the schools."

Rebuttal: PERHAPS?!? & You "know" only TWO Catagories??? Come ON! Oh wait...

ALLOCATE = Take some of the profit from a business and give it to schools... Wait... We ALREADY DO THAT! AND, that's just redistribution. And, the businesses leave do to the increased burden. Just look at the issues in the State of Michigan or other heavily liberal states. This is currently done, and it always fails.

8. "I'm not a Kenyesian"

Rebuttal: No, You're a confused individual, who subplanted the foundation of the American System for principles of central planning (aka Marxism). Then placed this on a conservative blog, and attempted to brand it as a "conservative viewpoint." And, somehow this was allowed to be posted on the board!