Tuesday, February 10, 2009

Vouchers Instead of Tax Cuts

Some of the Republican opposition to the bailout stems from deep-seated skepticism about Keynesianism. Some of that skepticism is simply confused, as when Republicans say that the New Deal didn't end the Great Depression; World War II did. If that's true (and I think it is), that's because the New Deal did not provide a large enough stimulus (and because FDR foolishly tried to balance the budget after the initial bout of spending) to make up for the idled productive capacity, but WW II did. To be sure, one can find conservative economists who think that Keynesianism never works; their argument is that the Great Depression, like earlier depressions, eventually just ran its course, and the economy turned around.

But I strongly suspect that there are enough Republicans (i.e., at least a couple) willing to give Keynesianism a try that sufficient support could be constructed for the right stimulus measure. The real problem is that like Dems seeking to use the economic crisis as an opportunity to do what they/we want for the long term, Repubs want to do the same in different directions. That explains why the Senate bill, which needed Republican support to get to 60 votes [footnote on this point below], has more tax cuts than the House bill, even though tax cuts are likely to be largely ineffective if people simply save the money---which is entirely rational under the circumstances.

Which brings me to my proposal: Instead of tax cuts, how about vouchers? Republicans frequently argue that individual people, rather than the government, should be deciding where to direct their stimulus. Well, the way to do that is to give people---by which I mean both employed and unemployed people---monthly vouchers with monthly expiration dates. These could be targeted based on income or they could simply be given to everybody aged 18 or older with a social security number: $100 per month to spend on any goods or services you want; the catch is that you can't bank them.

Sure, there would be some enforcement issues. We can imagine retailers that launder vouchers for banks, but we can impose stiff penalties for such behavior and hire a cadre of newly unemployed accountants and lawyers to enforce the rules. There will also be some people who will spend their vouchers and then save some money they otherwise would have spent. But that effect is likely to be substantially smaller than what we see from straight out tax cuts.

So, if House and Senate negotiators are having a hard time getting to yes in ironing out their different bills, vouchers---an idea conservatives love in other contexts and should love in this one---can bridge the gap.

[Now the footnote: Another way to get to 60 votes in the Senate would be to seat Al Franken, wheel in Ted Kennedy, and tell Arlen Specter---up for re-election in 2010 in what has become a very blue state---that if he doesn't vote for the Democratic version of the bill, Barack Obama will personally campaign for and raise money for his next challenger. Or Harry Reid could start talking about the "nuclear option."]

Posted by Mike Dorf