What needs to be done?

Purple Penguin, below, on my post Liquidationist Nonsense, asks "okay, so you point out the problems, now what's the solution?" Well, I've previously mentioned what needs to be done, but here goes:

1. The core problem is jobs. Thus the only tax policies that matter, from our perspective as Americans, are tax policies that penalize outsourcing and reward in-sourcing in order to bring jobs back home from India and China. Note that this does not increase the number of jobs world-wide, we're just shifting employment between nations, but it does increase the number of Americans employed, and it is the duty of the U.S. government to care about America and Americans, not about India and China.
2. Simultaneously, we need to increase consumption if we are to create jobs. The first way we can increase consumption is by increasing the consumption of the U.S. government, which is the only entity that has the power to simply print money if necessary in order to cover the costs of these new jobs. Yes, printing money causes inflation, but if the new jobs cause an increase in GDP output equal to the amount of money printed, then there is no net inflation because the supply of money and the supply of goods and services available in the economy remain the same. Given the collapse in asset values, we can print roughly $4 *TRILLION* before we have to start worrying about inflation.
3. So anyhow, first way the government increases consumption is via infrastructure programs. These produce actual physical goods in the economy and requires employment and physical goods purchases that ripple through the economy and therefore increase GDP. The current modest increases in infrastructure programs created by Obama's "stimulus" are insufficient to add more than 400,000 or so jobs in the economy. Clearly we need to do more. A massive amount more. China's stimulus program, if we'd implemented a similar one here scaled to our much larger economy, would be $2 TRILLION dollars. That might -- maybe -- be enough.
4. The second way is for government to backstop consumers with social insurance programs. Because of idiocies like Arizona's unemployment insurance program being capped at $240 per week maximum payment, people are having to create their own social insurance by slashing their consumption and expanding their savings, and that is causing a massive decrease in consumer spending. If unemployment insurance would cover mortgage and car payments so that people wouldn't become homeless and car-less if they lost their jobs, people would be able to resume spending. As it is, we're all stashing money away frantically because we expect our job to go away -- thereby causing it to be a self-fulfilling prophecy, since without consumption of goods and services, there are no jobs.
5. And finally, there is the question of how to finance all of this. I previously noted that Treasuries are at 0%. What I did not note is that even at 0%, they are taking away investment money from the corporate bond market, which is having problems finding buyers for commercial paper even at significantly higher interest rates. There is an easy way to drive down interest rates on commercial paper and thereby decrease interest spending by corporations, allowing them to either lower prices (thereby allowing consumers to consume more for a given dollar) or to make a profit (and thus avoid mass layoffs). That is for the Federal Reserve to start purchasing mass quantities of Treasuries. If investors no longer can buy Treasuries because there are insufficient Treasuries on the market, they are practically forced to buy corporate bonds instead. More buyers for corporate bonds means lower interest rates for corporate bonds, thus both allowing easy "readjustment" (since corporations then have the capital to use to adjust their production to meet new unmet needs) and increasing consumption (or at least preventing the decrease in consumption that would otherwise be caused as corporations lay off).

Those are just a few ideas off the top of my head. But my point is that President Obama's 2010/2011 budgets incorporate *none* of these -- in fact, *slashes* payments for unemployment insurance and Medicaid. The President is doing exactly the opposite of what needs doing, and we are all going to be the poorer for it.

-- Badtux the Economics Penguin