I’ve been thinking about President-elect Obama’s proposed stimulus plan lately, as it represents one of the larger policy decisions of the coming year. Most economists agree government stimulus that some form of is necessary to prevent a deflationary economic environment, and to improve economic sentiment. But what criteria should we use to judge fiscal stimulus spending, and are there any good ideas out there that haven’t been considered?
Stimulus Plan Criteria:
1. Speed: Any stimulus spending needs to occur quickly in order to boost the economy. Projects which don’t hit the ground til 2010 don’t meet this criteria.
2. Spent, Not Saved: Ideally, 100% of any stimulus funds should be spent on consumption of goods and services to kick-start the economy. Tax rebate checks, particularly to the wealthy, perform poorly in this regard because a larger percentage of the funds will be saved.
3. Return on Investment: Projects with a measurable return on investment, whether in economic growth or otherwise, are preferable to spending that has no longer term benefit.
With these criteria in mind, here are some fresh ideas that I think deserve consideration:
1. Convert school buses and bus fleets to CNG. This would decrease diesel emissions near children, and also reduce US dependence on foreign oil, while providing an immediate boost to the auto manufacturing sector. Particulate pollution kills tens of thousands of people annually – why not spend to improve public health and reduce oil dependence at the same time? $25 Billion would enable the conversion of half the nation’s school bus fleet.
2. 100% tax credits for energy efficiency in homes and small businesses. Instead of handing out tax rebate checks, which aren’t spent in full, why not pay homeowners and businesses to improve energy efficiency? President-elect Obama has made a similar proposal regarding federal buildings, but tax credits would lead to faster spending since consumer and small businesses can move more quickly. $50 Billion would retrofit 50 million of America’s single family homes with energy saving modifications.
3. Increase funding for basic science research. The great economic booms of the 80’s and 90’s were driven by technological advances like the personal computer, the internet, and pharmaceutical technology, and these technologies had their early beginnings in basic research. Increasing basic research and grant expenditure at the NSF, NIH, DARPA, and other agencies would employ thousands of new college graduates and researchers while accelerating the path to future technological breakthroughs. Doubling the NSF and DARPA budgets would cost $10 Billion, while another $5 Billion would add to NIH’s budget.
Funding these ideas in total would cost $90 Billion. While federal spending at this level would crowd at private investment in normal circumstances, today’s circumstances have drastically reduced private investment across the board. If the Federal government is planning to spend close to a trillion dollars on stimulus, shouldn’t we fund high return projects like these?