Economists and politicians have offered two potential solutions to the economic woes in both the United States and Europe:
  1. Austerity budgets that will kill the economy.
  2. Continued deficit spending that will kill the economy.
Of the two options, killing the economy later is better than sooner. But either way, we're still dead. And this fascinates me about the debate: All informed adults assume we're dead either way. I haven't seen an economist map a way that we could keep overspending and later inflate our way out of the massive debt without causing a new set of problems just as dire. And economists generally agree that cutting government spending is the equivalent of pulling the plug on a comatose economy.

If you can't keep spending wildly, and you can't spend any less, what option remains? Allow me to trot out a third option that might work for the United States. Some of it will look familiar but I'm adding a new layer.

Let's start by agreeing that the amount of risk that either a person or a country should take is driven by circumstances. A prosperous country can afford to have many workplace laws and regulations to keep everyone safe. But if the world is on the verge of economic meltdown, you might accept some elevated risks in order to benefit the greater good. In general, bad times increase your options. Even a gridlocked and constipated government can make decisions when death is knocking at the door. (At the moment, death is merely walking toward the porch.) So while your first reaction to my plan is that our government could never act so decisively and creatively, I would suggest we are nearing a point where the only choices will be drastic and out-of-the-box. We're almost there.

My economic plan is for the government to pass laws ordering banks to turn all foreclosed properties into a specific type of rental. These homes would be reserved for foreigners that have highly valuable economic skills and a desire to live and work in the United States. At the same time, the government would ease restrictions on immigration, but only for the most skilled workers.

For the most part, the new immigrants wouldn't be taking jobs from Americans because there are always job openings for the top talent. The biggest tech companies are always begging for engineers. No employees of McDonalds will be replaced by the influx of foreign talent.

The new laws would also require that the foreign renters give all of their banking business to their landlord banks. The law might even have a clause that says the renter must someday get his first mortgage from the same bank, at a competitive rate, should he eventually buy a home. Buying a home would be the only path for a foreign renter to get out of the bank-owned rental market after say three years.

Banks don't want to be in the business of property management, so let's assume this idea creates a bunch of new jobs to support the rental properties. You'd need someone to qualify renters and help them move in. You'd presumably need lots of repairs to get properties into rental shape. And you'd need ongoing service and repair work because renters don't do their own home maintenance.

The government could also require the foreign renters to hire local housecleaners, to use local carpet cleaning companies once a quarter, and that sort of thing. That creates more jobs. Imagine also that the government loosens restrictions on cooking at home and selling food. And let's say the new renters are required to use these personal chefs at least twice a week. That's more jobs. Obviously I don't have the details worked out, but the basic idea is to compel the highly-paid foreign engineers to pour money back into the economy in ways that create jobs.

Next, the government could require banks that own foreclosed properties to install photovoltaic systems on each property that has the right kind of sun exposure. The estimated monthly energy savings would be tacked onto the rent, effectively financing the solar systems. Rental agreements would spell all of this out, including a warning that there might be people doing work on the roof for a week. That will create more jobs in the solar industry.

On day one, this new set of laws would stabilize the real estate market by sucking up the foreclosed properties. The big tech companies might find themselves hiring foreign engineers that rent homes in one state and work in another, just to take advantage of the loophole to hire talent. That's okay too.

In the long run, the influx of engineering talent should give the economy a nice boost. America's largest untapped resource is the fact that people want to live here. In normal economic times we can indulge our irrational fears and biases about outsiders. But as doom walks up our porch our appetite for risk increases. The unthinkable will turn thinkable.

I'll stipulate that my plan has flaws. I'm using it to illustrate a bigger point, that the "third way" out of our economic gloom will reveal itself as our appetite for risk increases. Desperate times require risky solutions. We might impress ourselves with our own creativity in the next year. I hope so.
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-7 Rank Up Rank Down
Jun 5, 2012
"Government IS the problem". I'd assumed that the readership here was a cut above the cyber hoi-polloi. Clearly I'm mistaken. They're libertarian knuckle-draggers with all the mental capabilities of a bag of flour.
Jun 4, 2012
How about everyone in the country learning to live on what can easily be quantified as "enough". No more 5000 sq. ft. houses for two inhabitants, $50,000 SUV's etc., excess of all kinds abound in this country, the expanse between the rich and poor is growing. If we can learn to live on what's comfortable but "enough" then we have plenty of disposable income to pay down the personal debt and to pay off our national debt. Of course this will only work if the government follows along, no more $2 billion a week for wars we can't win in countries that don't want us there.
+6 Rank Up Rank Down
Jun 4, 2012
"For the most part, the new immigrants wouldn't be taking jobs from Americans because there are always job openings for the top talent. "

Doesn't matter. Americans refuse to admit we can't find the talent hidden among our own population. That's almost like admitting failure. We don't do that here.
Jun 4, 2012
1. Austerity does not have to kill the economy. Foolish austerity will. The economy runs on consumer spending. Giving billions in tax breaks to oil companies making record profits does not benefit the economy, just the oil companies. Whereas unemployment benefits which are spent immediately helps the economy a lot. We could make large cuts to federal spending and tax breaks (which are essentially spending) without hurting the economy if we did it wisely.

2. The deficit is high because the economy is doing badly and tax revenue is reduced, while social safety net spending is increased. An improving economy would increase tax revenue and decrease spending, thereby reducing the deficit.

3. When the economy is recovered we could cut spending further to eliminate the deficit.

We had no deficit under Clinton with a booming economy. Tax cuts and massive increased government spending under Bush created a massive deficit without helping the economy. Poor management does not mean that management cannot be done well.
Jun 4, 2012
I'd tweak your idea here and take the "gimmick" out of it. The U.S. has a Green Card Lottery every year in which 50,000 foreigners who apply for the lottery each year can win permanent resident visa status, with the only hurdle being you need a high school diploma or two years of work experience (in an industry requiring training).

Simply replace the Lottery with a selective process. Pick only the brightest and best, and heck, pick them for having some economic clout. They'll come here and buy the houses, not rent them. They'll become consumers, and high end contributors to our industries.

If you're looking to position our economy for the future, combine this with your last blog. Imagine what the future will be in 100 years. By that time, certainly, there will be an industry in space going; perhaps bases on the moon. Perhaps a space elevator. Maybe we'll be actively managing the evironment in some way. Imagine what transportation will look like. Then, get a head start, start investing education and stimulus dollars that way. Bring the future forward, and have us be in the lead.

Meanwhile, scale the entitlements back to the cold mathematic realities of what is sustainable. Balance the budget. Once the budget's balanced, we can all take a look at what services we get, for what we pay. If we want more, we pay more.
-3 Rank Up Rank Down
Jun 4, 2012
It has been said before, but is valid today and with your third way:

Government is not the solution to the problem, Government IS the problem.

No government has ever taxed itself into greatness.

If your real concern is to boost the economy, start a world war. It worked for Roosevelt.
+6 Rank Up Rank Down
Jun 4, 2012
Some here have [accurately] commented that we currently enjoy low borrowing costs. That means it's the fools loaning us money at negative real rates that will get burned. Unfortunately:
1) Most Treasuries are being bought by our own Federal Reserve, which is creating the absurdly low rates to enable our blowout deficits. But that means we (the taxpayers) are the fools loaning the money (via the Fed).
2) Regardless of who's buying our debt, when it comes due, unless by some miracle we're running budget surpluses (I haven't seen any such projections even in politicians' dreams), we'll have to refinance them by borrowing again at much higher rates. It's a time bomb.
+9 Rank Up Rank Down
Jun 4, 2012
Not all economists believe the Keynesian myth you describe (Keynes himself probably wouldn’t buy into what’s being pedaled today). But if you’re in government (or an economist working for the government), of course it behooves you to promote the theories that condone expanded government.

The Austrian school of economics, on the other hand, does not believe that the government can stimulate the economy. Government cannot create wealth, it can only redistribute it (which includes waste, and is almost always put to less productive use than where it came from, thus retarding growth). It can print money, but this doesn’t create wealth, it merely spreads the same wealth over more dollars (inflation).

According to this theory, government spending is a drag on the economy – which would go a long way toward explaining what’s been happening for the last decade. The spending blowout of the last few years has prevented an economic recovery. And what do you know, after trillion dollar deficit spending, we’ve had the worst recovery since WWII.
-4 Rank Up Rank Down
Jun 4, 2012
You can't compete economically against a country where they much work harder than us for cheaper and are better educated in mathematics, science and technology, and aren't American-Idol-watching morons.

Just accept that we can't compete against them economically.

Instead of even *trying* to compete against them, the thing to do is admit we have enough luxuries focus on developing *life quality*. Forget competition, it's time to start cutting working hours, capping executive fortunes, and redistrubitng resources.
-7 Rank Up Rank Down
Jun 4, 2012
It won't work. There's already a big pool of engineering talent that isn't being used. Tens of thousands of skilled computer programmers who don't have the sheepskin so can't find a job. Tens of thousands of mathematics majors who would like to go into engineering (basically the same field), but can't find a way to get an engineering sheepskin without starting over.

To create jobs, the best thing to do would be to come up with a brand new commercial idea for some product that isn't being made in China. Then have your engineers start making it. The problem is, the Chinese will do it cheaper, and it will quickly be taken over by the Chinese.

But what's the big worry? Netherlands is one of the world's biggest food producers, even with a relatively small percentage of its workforce on agriculture. So just increase agriculture. Then food is taken care of. Then we only have to redistribute luxury goods, making sure there's a fair allocation. Bam! All the country's problems solved. Easy-peasy.
Jun 4, 2012
Thought I'd managed to post this earler. It's tangentially relevant to the Third Way debate. This blog is probably not overflowing with sonnet fans. Pity. I find Dilbert to be a tired cynic. Okay, we're all tired. That's not a sin. However Dilbert, given his vast reach, dissipates revolutionary energy and helps keep people in their cubes. Do I overstate? After thousands of awkwardly-suspended Frame Three's, he's remains on the job. Where's our Che? I'm a fan of Ernest Hilbert's sonnets. So the rhyme, if not the reason, proved irresistible. --Norman Ball

Dilbert's Hilbert Cube
(a paean to Ernest Hilbert's sonnet experiments)

Cubicles surround a devil's bargain
beneath the vanguard's failing line-of-sight.
Good men scaled heights and died so all might pierce
acoustic tile. Their kids now mutter jargon 
behind fabricated lines. Space is tight.
Cross-chatter subs for views in tombs with ears
for radio. Whole minds attune then take

Dilbert stirs the pot with lead
balloons. His sketchiness is tightly drawn
by five. Outside the box, Big Bosses rake
trapped miners over coals while overhead
a phosphor-fingered entity has sawn
animal spirits squarely down to size--
three frames, then Dilbert's animus subsides.
+4 Rank Up Rank Down
Jun 4, 2012
"America's largest untapped resource is the fact that people want to live here."

Ok, but would they want to live there under such !$%*!$%*!$%*!$
I can readily imagine the average indian programmer wanting to live and work in the US because she wants to send lots of money back home to her family.
Jun 4, 2012
"The government could also require the foreign renters to hire local housecleaners, to use local carpet cleaning companies once a quarter, and that sort of thing. That creates more jobs. Imagine also that the government loosens restrictions on cooking at home and selling food. And let's say the new renters are required to use these personal chefs at least twice a week. That's more jobs. Obviously I don't have the details worked out, but the basic idea is to compel the highly-paid foreign engineers to pour money back into the economy in ways that create jobs."

Really Scott? You want the government to force on people's lives, the kind of food that they will eat, the place they would stay, the cleaning services they would use and expect them to be productive slaves? You know why people want to come to USA and work here? It is because of the one value - FREEDOM. The moment you want to use force in whatever manner - because it is a slippery slope - people would not want to come here anymore. The vicious cycle will doom AMERICA. I hope for goodness sake, nobody takes this botched idea seriously.

I have always loved your creative ideas and for once, I cannot believe originated in the same head as other ideas!
+19 Rank Up Rank Down
Jun 4, 2012
Unlimited H1b visas.
That basically would accomplish your goals without all the messy, difficult, and legally problematic top-down controls. The simplest solution is usually the best; yours creates a monstrosity similar to other grand (usually failed) government solutions. Also, regarding solar panels, subsidizing an uncompetitive product does not improve life on the whole. Look at ethanol, or previous solar subsidies in Germany.

Just ALLOWING unlimited immigration of highly talented folks would increase housing demand and create jobs. Currently, right after a top international engineering grad gets his diploma, he gets a letter from the INS saying "go home and start a business there." All we need to do after giving the world's brightest the world's best education is let them stay.
Jun 4, 2012
Economists like Karl Smith are longstanding advocates for highly increasing immigration flows to "solve" America's long-term fiscal problems.

That said, inflation-indexed ten-year T-bills are trading *below* 0% interest. People are PAYING the government just to hold on to their money for a few years. I have no idea how spending financed by debt that bears negative interest is a problem, and have yet to hear a coherent explanation from those who say they do.
Jun 4, 2012
Labreck, what you've proposed has been offered before in politics. In general it would be a fair idea for a temporary raise coupled with spending cuts.

Sadly what happens specifically in US politics that make your idea unworkable is the tax increases happen and are swiftly followed by spending increases. It's nearly impossible to get spending cut here. I could imagine it possibly working here (in theory) so long as the tax increases only happened if the spending cuts happen first and are dependant on the spending remaining down. If the spending cuts aren't persistant, the taxes would have to go back down.

However in the US, I don't see that happening.
Jun 4, 2012
Scott, you start of by saying that both current options will kill the economy. Well, depending on one's political views and economic knowledge, you could certainly make the case for both or either being true. You then go on to suggest a third way which would try to lure productive people out of their countries which may be floundering in order to save our own. Getting the top talent here would certainly help us out very much. The US was founded and created by hard working people who were the top talents of their day and this spirit allowed us to become what we have.

Now, for the sake of agrument, let us beg the original question of killing the economy. From your blog, I know you and your readers are either believers in the concept of evolution or at least understand the science behind it. In other words there are a lot of scientifically literate people here. That is a fair accessment, is it not? Evolution according to the theory, is how life progresses, isn't that correct?

So what is one of the key facets of evolution?

Extinction. Or in economic terms creative destruction. Sometimes newer better species arise and push the old ones out. Other times, something happens to the enviroment (meteor) and nothing is really able to survive. The game has changed. So life adapts to the new !$%*!$%*!$%*!$ Yes some species die, but isn't that the point? Doesn't change require cleaning out some of the old and adding new every now and then? Even before mankind first arose, 99.9% of all species that ever lived were gone. That what isn't fit dies and something which is better fit fills the newer niches. In time it itself is no longer fit and another species replaces it.

Extinction, or death, is therefore required for evolution.

So what is the point of all this? Well the current economic crisises have arised for a number of reasons. The fact that so many economies are linked means as more countries go south, more will. In other words, the stage has been set for an economic mass extinction. So while your your suggestion may indeed be what is needed to save us, it might only prolong our suffering. And if you look from the other country's perspectives, stealing all of their top talent will not endear us to them and it might even worsen their situations, which would indirectly hurt us as they are our trading partners.

So one other solution might be to accept the fact that economies are dying, try to find out all the causes of the deaths, and then rebuild new economies with those lessons in mind splitting the ideas into new political and economic groupings as necessary and allowing the fit solutions to thrive and the unfit ones to fail; after all we don't want to put all of our eggs in one basket. Likewise if we allowed the current economies to fall, it would offer people a chance to rethink their positions as they are not invested in the current, dying, systems. Likewise as we didn't "steal" top talent from other countries, they'd be more willing to cooperate with us in the future. We'd need their cooperation in the future economy wouldn't we?

So let us accept economic death and create enough new economies to fit the various solutions proposed and beliefs about what should be done. That would be a nature-inspired option.
Jun 4, 2012
The main flaw in the "Austerity budgets that will kill the economy" side is that we are talking about the government budget, but economies live or die on what the private sector is doing, not what the government is or isn't spending. Frankly deficit spending by the government doesn't directly effect the private sector economy either, too much deficit spending just means China will eventually refuse to lend you any more money and nearly all government payments will stop very abruptly.

The things that government does that most directly effect the private sector economy are tax policy and regulations. Of course tax rates vs. the deficit leads to arguments of whether raising/lowing the tax rate will result in higher or lower tax receipts into the government, which is off topic for this posting.
-7 Rank Up Rank Down
Jun 4, 2012
"Continued deficit spending that will kill the economy."

Why would the economy give a flying rip about deficit spending? Treasuries are at historic all-time lows and we have very serious infrastructure and staffing needs that our government has got to deal with. Much of the deficit would go away if we could get the country's economy growing again, and targeted government spending is one of the quickest ways to stimulate the economy right away. The private sector has been adding jobs while the public sector has been shedding them. Unemployment would be a full point lower (not even counting multiplier effects) if we had simply maintained the same level of growth in the government workforce that we averaged over the past 60 years. Instead, we've been shedding those workers and cutting back on government spending that could've helped the economy.

I'm not saying that indefinite deficit spending is advisable or even feasible. But right now, when the economy so desperately needs a boost to keep us from falling back into recession, 1937-style; this is not the time to be governed by a fear of deficits.
+1 Rank Up Rank Down
Jun 4, 2012
I'm in no way an economic expert, nor am I very informed about the details of the U.S.A economic situation. But I leave in Quebec, where we just have your problem, but a lot worse. Big public debt, lot of public spending making the economic run, and very high taxes rate. Our marginal taxes on the salary are about 56%. That should give you an idea. Plus about 15% taxes on sale. And our government still manage to spend more that it gain each year.

U.S.A could probably solve their problem if they accept higher taxes rate for a time, the time need to slow down the spending and bring it back to a more acceptable rate and get the debt back in control. Not pleasant, neither for the citizen nor the politician or the economy, but it would work. You are lucky enough to have a lot of margin to taxes more without hurting more the economy that what you gain from higher taxes. Quebec doesn't have this option actually.

So your plan is a good one for a short duration. Sadly, the American Dream is stronger on poor and uneducated peoples. The qualify worker you want are firstly in limited quantity, and strongly compete over. For myself, I would go in Norway if the situation became dire in Quebec, not USA. One thing you can consider to solve the problem for latter, is encouraging childbirth and high education.

It might start the economy again, but then you will only postpone the problem later, as your public spending is not adequate in regard of your taxes rates. But that a choice, you can have low taxes and low public spending and assume that individual will invest in the economy. Or you can assume that with high taxes rates and high spending that your government will be efficient and not corrupt. Either way, nothing is perfect.
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