Jamie Galbraith, economic superhero:
First, we must fix housing. We need, as in the 1930s, a Home Owners’ Loan Corporation to restructure failed mortgages on sustainable terms. The basic objective should be to keep people in their homes by all necessary means, except where borrowers committed willful fraud, so as to stop the spread of blight and decay. Government can use its power over banks to make this happen, as it has with IndyMac, the California bank that is now, as a federally owned company, revising unsustainable mortgages. But this is no small endeavor: The fdr-era holc operated for almost two decades and at its peak employed 20,000 people.
Second, we must backstop state and local governments with federal funds. Otherwise falling property (and other) tax revenues will implode their budgets, forcing destructive cuts in public services and layoffs for teachers, firefighters, and police. And when these public servants are laid off, guess what? They have trouble paying their mortgages. General revenue sharing—unrestricted federal grants to states and towns, a program invented by Richard Nixon and killed by Ronald Reagan—is required. Luckily it can be reintroduced quickly on a large scale.
Third, we should support the incomes of the elderly, whose nest eggs have been hit hard by the stock market collapse. We can’t erase those losses case by case (nor should we), but we can sustain the purchasing power of the group. The best way is to increase Social Security benefits. Useful steps would include boosting the formula for widowed spouses, ensuring a minimum benefit for retirees who worked their whole lives in low-wage jobs, and allowing college students to receive survivors’ benefits up until the age of 22. But let’s go further and raise benefits across the board, which has not been done for a generation. I’d say raise them 30 percent, and let the federal government make the contributions for five years. This would be good for the elderly, who could retire; good for working-age people, who would replace the retiring; and good for the economy, since people who need money spend it when they get it.
Fourth, we should cut taxes on working Americans. Obama proposes to effectively offset the first $500 of Social Security taxes with a refundable credit. It’s a good idea, but can be expanded. If the economy continues to spiral downward and a really large fiscal boost is needed, let’s declare a payroll tax holiday, funding Social Security and Medicare directly from the treasury, until the economy gets back on track. Workers would get an immediate 8.3 percent raise to help meet their mortgages; employers would have the same amount to spend on wages, job creation, or investment. (Not all efforts to jump-start the economy deliver so much bang for the buck. See chart below.)
Is this the standard “liberal line”—borrow and spend? No. It is the situation, not the philosophy, that demands this action both grand and sustained. Economic recovery in an existential crisis like this means actually building a new economy.
