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One proposal to fix the federal budget

University of Delaware economics professor Laurence Seidman has a proposal that’s too sensible to ever be adopted for fixing the federal budget. Here’s his description of the problem:

The worst federal budget policy is the one we’re now following: ignoring the looming large future deficits while refusing to enact temporary fiscal stimulus to combat the recession. As long as Congress and the president refuse to tackle the large looming future deficits, financial markets and the public will rightly stay nervous.

He suggests three things, the first is a “normal unemployment balanced budget rule” for Congress. It would require the annual federal budget to be balanced if the unemployment rate is 6%. The second is a set of changes to entitlement programs that would avert their future budget-busting growth. And the third is a set of stimulus programs pegged to the unemployment rate:

At the same time, Congress should enact a set of temporary tax cuts and expenditures to stimulate the economy. This legislation must contain a phase-down schedule so that these temporary measures are phased out as the unemployment rate, which is currently over 9 percent, falls below 9 percent, then 8 percent, then 7 percent, and are completely terminated when the unemployment rate falls to 6 percent. Note that these temporary measures would have no effect on NUBAR, because they would be completely terminated when the unemployment rate falls to 6 percent.

It’s the kind of idea that would work if we had two parties that were interested in restoring economic growth and fixing our future budget problems. Instead we have one party that wants the economy to stay broken for political reasons, and another party that prioritizes avoiding perceived political risk over actually fixing problems.

2 Comments

  1. Rafe, I really think you do a disservice to Democrats. I don’t think they are intentionally ruining our economy for political reasons. Their heart is in the right place.

  2. It has been a long time since serious effort was given to dealing with long term debt. The last time the federal debt went down instead of up was 1957 – http://josephscott.org/archives/2009/04/history-of-the-federal-debt/

    On principle I agree that pinning some of the process on numbers would be a good step forward, it is hardly bullet proof though. Look at this from a tech security point of view, how would I go about abusing/exploiting such a system? First one seems pretty obvious, change the rules on how we calculate unemployment. If you can’t easily attack the main system, attack the data that gets pumped into it.

    I wonder if there should be any consideration for non-average numbers as well. For instance the nation wide unemployment might drop to 6%, but you could still have states with twice that number.

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