Stimulus--What would be good for US?

We are hearing lots of noise about the Stimulus Plan--too big, too small, too much spending, not enough spending, too many tax cuts, not enough tax cuts, etc. etc.

What should we be shooting for? How about a bill with some built in accountability for the institutions and measures that can truly help us. What do I mean by that? Here's what I mean.

Instead of asking how much the bill will cost, let's try defining the problem, and putting forth the potential solution for it. Here's an example:

Problem one: Housing. And this is a multi-layered issue. How do we get excess capacity sold? How do we get mortgage rates affordable again? How do we get mortgage balances in line with depressed values?

PragmaticPundit Thoughts: The goal here is to get existing inventory sold, get valuation stabilized, and get people out of foreclosure or upside-down mortgages. How do we address this? Here's a few thoughts:

• Mortgage Rates--The idea of setting fixed mortgage rates at 4% for refinancing, or even lower for first time home buyers is one that really NEEDS to be tried. Banks should tighten up their lending practices, to be sure. But there are a lot of good credit risks who have been sitting on the sidelines, because refinancing right now isn't cost-beneficial to them. Republicans have put this idea on the table. Time to take it seriously.
• Upside-down mortgages--this idea is out there a little, but would help immensely! Allow people who are upside-down in their mortgages to apply for a federal program to bail out the loan to an assessed value, and refinance the home amount at a 3.5% 30 year fixed rate. It will cost the tax payer, but so will many of the other stimulus plans. And this plan has a chance to keep millions of home-owners in their homes, and banks receiving payment. After all, a bank getting a $500/month payment on a reduced-value home each month beats the bank pushing to maintain its $1,000/month payment on an upside down homeowner, and receiving nothing. I think there's an Aesop fable about this concept (something about a dog, a stolen piece of meat, and a reflection?). John McCain put this idea out there, and people laughed. That was October. Now it looks like something that could work.
• Incentive to homeowners to buy--The current proposal of an up to $15,000 tax relief for home buyers is a good start. Are there other initiatives HUD or others can think of, to try to get people to buy up remaining inventory? I'd love to hear a few.

Problem two: Lending. How do we get Banks to lend? How do we get people to take entrepreneurial risks in a market like this?

PragmaticPundit Thoughts: TARP is somewhat key here. Additionally, lending practices are important. I have been trying to think through the different ways banks can get to a place where they are willing to take on risks, in a recessionary, deflationary environment. Unfortunately, there are really only two options that seem palatable. One is to stick it out, start behaving more like a local thrift store, and take on more local, more stringent loan requests, and attach more strict repayment terms and conditions. The other is to take TARP money, and be willing to take on some more risk, but know that "big brother" is looking over your shoulder. Sorry, but there isn't a "best of both worlds" for the banks anymore. No one in their right minds would give the banks, say, $350 Billion and not demand any accountability for the decisions the banks may make for deployment of the funds. Well, maybe someone would...

Problem three: Personal Saving. How do you encourage people to save? How do you get them to pay back debt faster? How do you instill a discipline in people to manage their money effectively?

PragmaticPundit Thoughts: This is such a counter intuitive argument. "how do we get people to spend, but at the same time, how do we get them to save?" But saving and proper household budgeting is really the only way to rebuild the American base of proper fiscal responsibility. I hate to think it has to come at the expense of a robust economy in the short term. But we should be thinking about tax incentives, and yes, interest rate increases, to encourage savings, and give people a feeling that they are getting their fiscal house in order. The increases in returns should give people a psychological lift, make them feel richer, and more inclined to go out to dinner one more time this month than they would have otherwise. In our economy, that may be all it takes.

Problem four: Infrastructure. How do we fix roads, bridges, utilities, broadband?

PragmaticPundit Thoughts: This has to be initiated by the federal government. This is spending that is palatable to both sides of the aisle, and is in the stimulus bill. But it is way too little in dollar terms. Here is an opportunity to modernize, do it in an environmentally friendly way, and create jobs and wealth. Let's step on the gas here. Hundreds of billions of dollars could be spent here. Let's figure out how.

Problem five: Jobs. How do we find ways to save jobs that exist? How do we find ways to create new jobs that will expand over time, not decrease?

PragmaticPundit Thoughts: This could be a tax incentive solution here. Small and large business tax rates are high, and could stand to come down some. Additionally, tax credits for environmental spending (ie., buying hybrid car fleets), or a corporate investment income tax holiday, could be ways to encourage capital investment in the future. I am always interested in hearing other ideas. The tax breaks, and encouragement of capital spending would both be beneficial to job growth.

Problem six: Energy. How do we provide it to our people in a way that is cost effective, doesn't require us to grovel at the feet of foreign, hostile nations, and can be distributed to our people in a modern power grid?

PragmaticPundit Thoughts: we have to create alternative energy solutions. But how? For starters, what about more aggressive efforts to put LNG or electric cars on the road? It creates the need for coal-fired energy plants? For the short term, let's pick our poison. We need to get off of foreign oil. Let's do that. But you can't get off of Foreign oil for transportation, or heating needs, without getting off of domestic oil too. So we need to get these other technologies up and running (wind, solar, tidal, nuclear). and we need to give home oil heaters incentive to switch to Natural Gas, or electric. If we can get oil demand down further, we can continue to put the screws to the international leaders who are our worst enemies. There is nothing in an international negotiation like leverage. $10/barrel oil is leverage. All tax incentives I mention here should be on the table in this stimulus package. And investments in these technologies need to be there too. But I'd like to see some accounting for the results. Can we measure how much less oil we need through such measures? Can we count how many homes come off the oil standard for heating each year? The American people would love to see that their efforts are contributing to something better...



Wow! Lots to fix. Can this Stimulus package handle it all? Probably not. But I'd like to think that we as a country could find ways to be sure that all of our spending in this and subsequent bills, helps us towards addressing the problems we face today. It's what we must demand of our leaders...