5 Ways Congress Can Bolster Growth - NYTimes.com

Economic Scene:

Direct stimulus, important as it may be, isn’t the only option. Here are five relatively cheap ways to lift growth:

A RACE TO SOLVENCY New Jersey’s new Republican governor, Christopher Christie, had the nub of an intriguing idea recently. He lobbied voters to reject school budgets — rejections that would have led to layoffs — unless local education unions agreed to pay more for their health benefits. In effect, Mr. Christie was offering to save jobs now in exchange for saving money later.

It’s a trade more states should consider. State and local governments are on course to have budget shortfalls of about $400 billion, or 2 percent of the nation’s entire economic output, by 2030, according to the Government Accountability Office. The main reasons are health costs and pensions.

Imagine if Washington offered to help states get through today’s shortfalls in exchange for making progress on their long-run problems. In the ideal version of this program, states would get some initial money without strings attached. They need it to avoid those teacher and firefighter layoffs. States that came up with credible plans to reduce their deficits would then get more money over the next few years.

I realize this idea will make some Democrats uncomfortable, but it doesn’t have to be a partisan issue. After all, does it really make sense for states to be cutting back on essential services so that some workers can retire at 55? “Why should state workers or city workers or county workers have benefits that are far better than private sector workers?” Edward Rendell, the Democratic governor of Pennsylvania, told me earlier this year. “We should have parity, not better.”

LIFT TRADE American exports rose 11.5 percent from early 2009 to early this year, accounting for more than half of total economic growth. But this momentum will be hard to maintain if China’s currency remains as undervalued as it is.

Beijing recently announced that it would allow its currency to rise. One factor was the political pressure from other countries, including from our Congress, like a proposal by Senator Charles Schumer of New York and others that would put tariffs on Chinese-made goods. The bill is a blunt form of punishment that has the potential to set off a trade war. It’s also a useful threat, so long as China’s currency plans remain vague.

Another good step would be a trade deal with South Korea, which President Obama recently said he was pursuing.

PROVIDE CLARITY Corporate executives complain that uncertainty about regulation has made them wary of expanding. Some of their complaints are classic political posturing — an attempt to avoid oversight by claiming it will hurt the larger economy. In reality, consumer demand and Europe’s woes are much more important sources of uncertainty.

But the complaints aren’t totally without merit. Washington has indeed passed some sweeping new laws recently. Fortunately, with health reform starting to take effect and financial regulation on the verge of passing, the future is starting to look clearer for businesses trying to make decisions.

One big piece of uncertainty remains, though: energy. Several energy chief executives have said they have major projects ready to go, if only they knew what was going to happen to the cost of emitting carbon. The same is no doubt true of nonenergy companies trying to make decisions about new buildings and factories.

The Senate still has a small window to pass an energy bill this summer. A good bill would include a cap on power plant emissions, making clear how much more expensive those emissions would become. Such a bill wouldn’t help only the climate, as Jim Rogers of Duke Energy says. It would be a form of stimulus, too.

LEVERAGE TAXPAYER MONEY Last year’s big stimulus bill included $2.3 billion for promising clean energy projects. To qualify for the money, companies had put up 70 percent of a project’s cost, in exchange for a tax credit equal to 30 percent. The idea — just as with cash for clunkers — was to use a relatively small amount of government spending to spur much more private spending.

The program turned out to be quite popular. The Energy Department received requests for more than $10 billion in credits and judged about $8 billion to be worthy. But it had only $2.3 billion to spend, so most qualified applicants got nothing.

A bipartisan handful of senators, including Richard Lugar and Orrin Hatch, both Republicans, have since called for an expansion of the program. It would not be free, of course. But it could provide good bang for the buck.

The federal government could leverage its spending in other ways, too. It could give households an incentive to improve the energy efficiency of their homes — cash for caulkers — and could look for similar investment incentives for companies outside the energy sector.

THE FED’S MISSION Ben Bernanke, the Fed chairman, seems genuinely torn about how weak the economy is. He has said that inflation is not a problem and that unemployment will probably remain high for years. Even so, he has been unwilling to push down long-term interest rates, which would encourage more consumer and business spending.

Mark Thoma, a monetary economist who writes a well-read blog, points out that Mr. Bernanke is in a political bind. He has been criticized by regional Fed presidents who always seem to worry that inflation is about to accelerate and who want the Fed to raise rates. But Mr. Bernanke faces no such internal pressure about the other part of the Fed’s mission: maximizing employment.

That could begin to change next week. The Senate will hold confirmation hearings for three new Fed governors, all of whom have the potential to make it a more balanced institution. It couldn’t hurt if a few senators used those hearings to review some basic facts: inflation has been zero lately, inflation expectations are tame, 15 million Americans remain unemployed and job growth has slowed in recent months.

To be clear, these five steps might not provide as much of an immediate lift as the obvious steps, like rapid aid to states, extended unemployment benefits and better access to credit for small businesses. But nothing is stopping Congress from pursuing both sets of strategies. The economy is still suffering the effects of the worst financial crisis since the 1930s. It needs all the help it can get.

Posted via email from Jim Nichols