Did anyone see this Richard Pryor/John Candy movie, Brewser's Millions? Pryor has to spend lots of money in a short amount of time. If he is able to spend this money quickly, he gets even more money! Of course, spending lots of money is very difficult to do in a short amount of time.
I estimate we need to spend somewhere around $1.5T
1,500,000,000,000.00 is a lot of money. We need to spend it fast. But if we do, we will have a world class economy and avoid huge amounts of working class sorrow.
When you need $1.5T of stimulus, you really should not be choosy between stimulus packages. You need to choose them all to spend this much money. We need tax cuts, a payroll tax holiday, and government infrastructure spending to avoid an even more severe downturn.
The U.S. is facing a dilemma. We need to stimulate the economy very quickly or there is a chance we will fall into a deflationary liquidity trap, similar to what has faced Japan for almost 20 years. But we do not have enough government projects already defined and ready to go that can truly absorb $1T+ dollars easily.
The dilemma is defined thusly:
- We do not know exactly how much stimulus is necessary. My estimate is about $1.5T. It could vary between 1.0 and 2.0T very easily - frankly, nobody knows or even can know.
- We need to spend it fast, otherwise we fall into a deflationary liquidity trap where much more spending will be required to get our economy back on track
- We do not have enough identified projects to spend $1.5T in 2009 and 2010. For example,all mayors in the country are requesting to spend 96B on infrastructure, or less than 7% of the required amount. A new smart electrical grid is $20 - 50B only.
So what can we do? We need a combination of spending, tax cuts, and most importantly, a Social Security tax holiday to stimulate the economy quickly.
We could have a payroll tax holiday where Social Security taxes are paid by the government. This would allow all tax payers who make less than 100K a year an effective 6% pay raise over the next year. In fact, this is one of the few ways we can spend enough money quickly enough to avoid a depression.
Then we also need to kick in with a suite of public works projects that bring the United States back to the highest standard of living in the world. Schools, Alternative energy, smart grid, Environmental clean up, improved highways, mass transit, Global warming mitigation, and more needs to be funded.
Soon, very soon, I will directly address how we are going to pay for all of this spending and tax cuts. But now is not the time to debate how money is created. We need huge stimulus, and we need it soon. Support government spending and a Social Security tax holiday to give working class U.S. taxpayers a boost to their paychecks.