Entries from November 2008 ↓

Public works projects are well intentioned and should certainly be pursued where appropriate; however, government has largely proven to be an inefficient allocator of capital. The single greatest tool the government has is the ability to incentivise behavior through fiscal policy rather than mandate it through regulation.

In this spirit, if we want America to thrive again, government should focus its efforts and resources on putting Americans back to work. The key to this strategy is to reduce labor costs for employers.

• Obama has it right with his tax credit for businesses hiring new employees, but this does not go far enough. There is a need for a number of other programs which have been tossed around by the new administration and some they haven’t thought of yet.
• The tax credit certainly lowers costs, but it is an upfront savings which effects will be limited by businesses already struggling to keep who they currently have on staff.
• Healthcare is another crippling cost that keeps employers payrolls smaller than they otherwise would be. This is why passing Obama’s healthcare plan will open up resources for hiring a more robust workforce.
• Offer employers further tax benefits for subsidizing the education of new employees and community college students who will commit to working for the company once they graduate. Not only will this be a boon to educational institutions, it will provide a clear path to employment for underprivileged youth.
• A modified section 8 program can close the gap left by a weakened economy, falling wages and a government which is quickly becoming over-stretched. The impact on struggling families and a faltering real estate market would work by encouraging those under threat of foreclosure to make sure they are working, even if their wages were less than desirable.

Much of our strength as a nation comes from the incentive system embedded in a capitalist economy. Rewards come to those who work harder and smarter than the competition; put in place the right incentives, put America to work and we’ll be on the road to recovery sooner rather than later.

Adapting the Section 8 housing subsidy model, government might the answer we are looking for that will abate the cascading housing crisis. At the root of most of our economy’s problems, especially the contraction in our credit markets and financial institutions, are falling home prices nationwide; a phenomenon never before seen in America. Much of this turmoil was caused by misaligned incentives; however, we can use these same lessons to implement innovative solutions which capitalize on our fundamental economic motivation: financial independence.

A program which expands rental subsidies to homes sold that are in danger of (or already through the process of) foreclosure would do two important things to help abate the current crisis: (1) guarantee real estate investors a baseline rental income –effectively allowing them to accurately value a property based on cashflows which are backed by the government– and (2) help individuals in danger of foreclosure by providing them a way to stay in their homes, even though they will no longer own them.

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