Time for Permanent Stimulus

Posted by Michael A. Kamperman on June 30, 2010

The New York Times had an editorial calling for an extension of unemployment benefits.  However, I took serious disagreement with their endorsement of deficit reduction by saying “A sane approach would couple near-term federal spending with a credible plan for deficit reduction — a mix of tax increases and spending cuts — as the economic recovery takes hold.”  In reality this is just a euphemism for cutting Social Security and Medicare benefits. This is not a sane approach. It is akin to the concept that the real fiscal threat is our debt and our long-term structural deficit, which is simply not true. The U.S. Government owes everyone dollars, which it can print. Now would be a very good time to start printing some money.  In reality there are going to be fewer jobs per-capita in our economy for a long time. The sane approach would be to lower the age of eligibility for full Social Security and Medicare to age 60 and to give everyone on Social Security a 20% raise. This is counter-intuitive to current mainstream thinking. But in the 1930′s Keynes concepts of government spending seemed counter-intuitive to maintaining a healthy economy.

It would cost $400 billion a year to lower the retirement age to 60. But the question should be what would we get for that $400 billion? For starters would we get a cadre of young retirees ready to volunteer at the charity of their choice. Plus, most of these retirees would maintain their spending patterns as they tap additional sources of retirement savings. Companies would be able to lower their health care spending as those over 60 who choose to keep working would move to Medicare. Older workers are the most expensive workers in health insurance risk pools. This would free up compensation money for raises for other employees. Some would be moving from Medicaid to Medicare, which would lower the cost of the Medicaid program.  But the biggest benefit would be millions of jobs would open up for unemployed workers and young people entering the workforce. This would save billions and billions of dollars at the state and federal level as unemployment spending and supplemental nutritional (food stamps) spending would decrease. And, the income of the unemployed would rise boosting consumer spending and tax revenues.  Additionally, confidence in a more secure and earlier retirement would encourage people in their 50′s to spend more money rather than fear that they will have to wait longer to receive Social Security and Medicare benefits. And the ensuing decline in the unemployment rate would entail a huge boost in consumer confidence.

Raising the retirement age, which is the goal of President Obama’s Deficit Commission, will trap us into years and years of high structural unemployment rates. America needs to find a way out of this New Great Depression and raising taxes and cutting federal government spending was tried in 1937 and ended in abject failure. So why even give lip service to an obviously failed policy.  We remain trapped in a mindset that since we have to balance our budgets the federal government should also have to balance its budget. But no other entity is like the U.S. Government, because they can print money and we cannot. Those that acknowledge the debt and the deficit are a serious problem give the upper-hand to the Deficit Hawks. In no way do I see either as problematic. We can print China a one trillion dollar check anytime they want their money back.