A Proposal for True Keynesian Economic Stimulus

Enough of the bastardization of Keynesian economics. True Keynesian economics is NOT about bailing out Wall Street and providing a tax cut to wealthiest Top 1-2% of population. Keynesian economics is NOT about providing government spending for a war machine. Keynesian economics is NOT about creating deficits WITHOUT a material return on investment in the form of FULL EMPLOYMENT.

What is Keynesian economics? In a nutshell, Keynesian economics is a political economic philosophy that believes that government fiscal and monetary policy can help close any output (GDP) gap in the economy - meaning recession/depression. The focus of Keynesian economics is on FULL EMPLOYMENT and SHARED PROSPERITY.

What we are seeing today in the form of various stimulus plans already enacted and proposed is NOT Keynesian economics. It is a bastardized version that helps those who needed it the least. EP has documented the weaknesses of the American Recovery and Reinvestment Act of 2009 (here and here) and now we are hearing reports of the "bipartisan" boondoggle that is heading our way in the form a new "jobs bill".  It won't work.  Why?

Tax experts and business leaders said companies are unlikely to hire workers just to receive a tax break. Before businesses start hiring, they need increased demand for their products, more work for their employees and more revenue to pay those workers.

It's the structure of the tax break - it is in the form of a tax credit.  This isn't rocket science.  Businesses, particularly small businesses, need cash flow and they need it NOW.  A tax credit won't cut it. 

WE NEED TO STIMULATE DEMAND!  That means putting money in people’s pocket and doing it on a regular basis as opposed to a one time stimulus check gimmick or tax credits that take effect until tax time. 



An immediate and Full Payroll Tax Holiday will provide a very effective and regular stream of extra of money for families to use on household expenses.  Each pay period, an employer withholds a certain amount of money from our pay checks.  The withholdings include a certain amount for state and federal income taxes, social security, unemployment tax and medicare.  The social security and medicare tax is known as FICA tax or Federal Insurance Contributions Act tax.  Both employer and employee pay a share of the FICA tax.  Currently, FICA tax rate are the following:

6.2% of gross compensation for Social Security portion
1.45% of gross compensation for Medicare portion

Employer:  Same rates

A Full Payroll Tax Holiday on the FICA portion of payroll tax would mean that employer and employee have extra cash each pay period to use to INCREASE DEMAND.  The FICA tax rate would be set to zero for employee and employer.  U.S treasury would pay the 15.3% on behalf of the employer and employee into the applicable social security and medicare funds.  This would mean an immediate stimulus, well targeted, simple and can be withdrawn quickly when economy starts to recover.

BTW, treasury would make the payment to social security and medicare on behalf of the employer and employee.

2)  A Direct Jobs Program

We are talking True Keynesian stimulus like the WPA or Civil Conservation Corp.  This direct jobs program should lead to a Jobs Guarantee program .  Remember, the target is FULL EMPLOYMENT and SHARED PROSPERITY.

As for those who are concerned about the deficit:  Full employment translates into more tax revenue.  The purpose of these programs are to jump start the economy by generating DEMAND.  This is what will help the private sector to start creating jobs.

Now, as for those who, like me, who want the "best bang for the buck".  Check the following tables and you decide (it's a shame that direct jobs program isn't on either).

(h/t - Openleft - Paul Rosenberg)

(Above graph from CBO)

Keynesian economics is about FULL EMPLOYMENT and SHARED PROSPERITY.  But its very convenient for those in Washington and neoliberals to forget that fiscal and monetary policy can be very powerful tools that can be used in ways that benefit big money interests.

Both Democrats and Republicans are quick to push for Keynesian stimulus policies when financial stability is threatened, but most (including too many Democrats) are silent when the economy fails to deliver shared prosperity.

Keynesian full employment stimulus policies must be accompanied by Keynesian structural policies that ensure wages grow with productivity, thereby ensuring sustainable demand growth. These structural policies include labor and social insurance laws supportive of unions and worker bargaining power, and international economic policies that prevent inappropriate competition and unsustainable trade deficits. The conservative capture of Keynesianism has both obliterated these structural policies and put a brake on reaching for full employment.

Good luck.





I hear ya on the jobs bill

In Hire America and Buy American, I went over some good proposals but the bottom line is they need to put income into U.S. citizens pockets (LPR). That's true Keynes, not just spending, handing grants to foreign companies for foreign hires....that is just spending, not the same thing.

I also wrote up some details that are implying small business doesn't have a credit problem per say, it's a demand problem, which again implies they need grants, projects work, sales, profits to stay afloat, expand, not just more debt.

It's like D.C. has a live on credit card mentality instead of an investment or work/production mentality.

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Part of it is that Washington mentality

to just get 'something' done. It doesn't matter if that 'something' doesn't work because at least a politician can say they did something. The Obama Administration is a great example of that.

I am not a deficit hawk but I absolutely hate wasting tax money. IMO, if the overall policy or program doesn't target FULL EMPLOYMENT then its a waste of government money. These various tax cuts/credits don't do that.

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Job Guarantee Program

I actually am not for this agenda and beyond the fact it has turned into a bureaucracy nightmare in India is this. The people proposing this do not want to limit the jobs to U.S. citizens, LPR. Right there, it won't work. Instead they are setting up a welfare benefit (yes I said the "W" word), as an incentive to enter the U.S. from other countries. In other words, the U.S. taxpayer is supposed to fund a job guarantee to anyone in the world who wants to show up in the U.S. Or put in terms of labor econ, they want to use U.S. government expenditures to guarantee a job to a global labor supply in one domestic market.

The global labor supply is about 2 billion people, give or take, the U.S. labor supply is about 150 million give or take.

I think the basic math there should show why that would be an economic disaster as well as an immigration/migration one as well.

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Any program can be designed in way to get

most 'bang for the buck'. If that means limiting it to U.S. citizens that is not beyond realm of possibility.

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right and some of this could be tweaked

But that is must have requirement. Unfortunately some of the various forces pushing this idea have their heads in their ass on labor econ.

Common sense will tell you one country and it's citizens simply cannot be the globe's job market....esp. when that country cannot support it's own people for jobs, careers, income.

I think the model should be on what worked in Voc. Rehab. Voc. Rehab used to have a lot more funding back in the 70's, 80's. and I think one can look at those stats, the successes, failures and why, to give "job guarantees". One thing i know this program had/has is strict performance requirements. If someone fails in their education/training, hey they do not continue to get the money. But this is almost secondary to what we need right now...

we need right now infrastructure projects that really target public works that future economic growth is dependent on and to put those people who are highly skilled already back on the job....

I mean I think there should be a ladder out of poverty and we could look at the various programs from 1934 to 1980 that had results, modify those, but it's almost secondary to what's going on right now.

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RE: Jobs Guarantee

This from the 1st paragraph of article linked to above:

A job guarantee program is one in which government promises to make a job available to any qualifying individual who is ready and willing to work. Qualifications required of participants could include age range (i.e. teens), gender, family status (i.e. heads of households), family income (i.e. below poverty line), educational attainment (i.e. high school dropouts), residency (i.e. rural), and so on. The most general program would provide a universal job guarantee, sometimes also called an employer of last resort (ELR) program in which government promises to provide a job to anyone legally entitled to work.

I think that eliminates illegal immigrants.

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not what some are proposing

in fact a host of groups who like to turn middle class issues upside down to really be their globalization agendas.

I really despize those groups trying to put up a special interest as a U.S. middle class issue...but I digress...

Then....one has no performance metrics, quality metrics in this. Hence, there is no incentive to actually do a good job, or what kind of work is being proposed.

Let's take the CCC as an example from the 1930's. That program was run like the military. If you didn't "shape up" you "shipped out". They had strict requirements on where the income went, most of it went to the boy's families to support them. Then, they were way below a normal wage for the time, providing room, board and all of the meat you could eat (they were famous for mass quantities of food).

Then...the projects were fairly selective that added to the economic development, in this case state parks (which charge entrance fees) but they also did a hell of a lot of forest fire fighting, so they were also acting as emergency service providers. They built a hell of a lot of roads, housing in state parks....

all projects that would give a lot of bang for the buck. What the above proposal is....isn't that.

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I keep pointing to the AAM white paper

which shows some very strategic projects, these are direct infrastructure jobs spending...but...unlike Stimulus I, they have these selected for the most bang for the buck in terms of investments needed, public works needed for future economic growth (there is some brain disconnect in this country that in order to have commerce one must have modern sewers, power grids, transportation (it's only a major EI!))

and AAM rightly put in their analysis all workers are U.S. citizens, LPR and all raw materials are domestically sourced (Buy American). That is true Keynes.

AAM white paper linked up.

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Sure, that is Keynesian

But again, that is a bold policy proposal which Washington can't handle right now.

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they should be

I don't have the multipliers but I believe the AAM proposals have been ranked somewhere as being high, maybe by the CBO but the AAM went through their own "Stimulative" analysis in their paper with the same assumptions, multipliers...

but the difference is they are not making faux paus Keynes by claiming spending that is supposedly Stimulative...can leave that domestic economy..(which is the faux paus Keynes), they have all of those requirements and it's from the actual theory, in their analysis.

It's damn good, probably the best proposal I've seen out there.

Beyond just extending more unemployment benefits, this latest jobs bill isn't that at all, it's not going to create any jobs.

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Ultra post, but....

...it doesn't configure well with junk economics (Michael Hudson's excellent term) or crackonomics (Matt Taibbi's excellent term).

Youse guys have got to get with the program, whatever you propose must have major kickbacks and mass corruption built in it. There's no other way.

I'm at an eatery the other day, and they have some talk show host on, the guy who claims to be a democrat (highly debatable) and a "progressive" (no way in Hell!), who has a caller from Chi town who intelligently states that until congress people begin adopting the attitude of working on behalf of the public good, nothing will get accomplished. The caller explained that they have got to stop spending all their time on getting reelected.

This clownish radio show host, in a completely nonsensical and non sequitur response, says they can't because they have to spend all their time raising re-election funds!

Huh???? Everytime the solution is presented, the misdirection begins....

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is occurring in direct jobs programs, infrastructure spending proposals too! I just pointed out major flaws as well as some special interest groups, who really are our classic global labor arbitrage folks too, pushing for a version of a "guaranteed" jobs agenda. Sad but true.

So, it's our job, regardless of whose mouth this stuff came from, to analyze down to the details and point out the fiction.

One of the most insulting things i see is globalists or some special interest group trying to spin their agenda as a middle class issue. We have quote unquote Progressive groups out there who are really special interest think tanks.

Hell, even EPI I think is becoming corrupted. I've noticed that more and more they seem to be releasing graph spin to defend the Obama's administration agenda...specifically ARRA.

This is yet another reason to keep EP non-partisan because we have this sort of vested special interest or corporate agenda that is not based on economic reality coming from both sides....it's easy to pick off the GOP, for their "ideas" are so obviously corporate generated but I see similar spin from some of these "labeled left" groups.

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You touched on something I've been looking into

I've been reading John A. Hobson and Hyman Minsky in order to get alternative economic theories. There seems to be a consensus from all the great economists that the so-called solutions currently being tried to alleviate the recession are the most inefficient options available.
For instance, I was reading Minsky last night and he pointed out if the idea was to get the GDP growing, then a WPA program would create nearly twice the bang for the buck than unemployment insurance would. Yet that isn't even on the political agenda today.

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Prof. Wray, who proposes the Jobs Guarantee, is a student of Hyman Minsky.

There are all kinds of social costs involved with unemployment that are often over-looked.

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Again, a reality check

While I don't normally read the Atlantic Monthly (too neoliberal for me, and they print Virginia Postrel's faux libertarian/neolib rants from time to time), they have a semi-intelligent article in this month's issue titled along the lines of the Long Shadow of the Recession, or some such.

Some laid-off professional (asuming they are actually reporting this accurately, and that's a big assumption today) is complaining, and acts clueless, as to why he can't find a job (he's 59 frigging years of age).

Evidently he's either been living in a cave, and since he's been working at the same hospital for the last seven years, I kinda doubt that, or he's been in a coma over the last ten years, ditto I kinda doubt that, how in bloody creation can anyone be so completely befuddled and oblivious as to what's been going on???

Holy Mother of God and Geez Louise! This dude's completely unaware of the exponential growth in the offshoring of America over the past 25 - 35 years?

These clowns are essentially the problem --- anyone over 35 who remains in clueless mode is THE PROBLEM. They will suddenly pull their heads out of the ground (note the nice version used here), sniff the air, then begin calling their congress creatures, none of whose voting records they ever familiarized themselves with, and wonder why their congress creatures couldn't care less (because you aren't paying them, clownish peoples).

Anyone who can't comprehend that there aren't an infinite number of jobs in ANY country, and that once a targeted country begins offshoring a significant number of jobs, the multiplier effect kicks in to reduce those support jobs, and then critical mass is reached, and there are no longer any jobs, with all job turnover in those areas primarily dependent upon tips (yup, bartending and wait staff jobs out there, as they keep leaving due falling business).

Back in the '80s, there was a politically-active bunch who phone phreaked a bunch of congress people and senators (from the incoming trunk side). They kept track of all the pro and nay callers, then matched them against what the congress creatures claimed.

End result: the true caller count bore no resemblance to what and why the senators and creatures claimed to be voting.

It can only be worse today....

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clueless is a PR campaign frankly

They must have searched high and low to find one worker over 35 to not be aware of institutionalized age discrimination, global labor arbitrage and offshore outsourcing.

That's the problem with those "personal stories", the "reporter" can just find one person, zero in on that one person and try to claim that's the situation or even worse, that's the exception and then go about character assassinating that person to justify their circumstance. (i.e. it's the worker's fault).

But my experience, there isn't anyone over the age of 30 who doesn't know about offshore outsourcing, labor arbitrage, age discrimination, guest worker Visas and the media is the corporate controlled spin machine.

The game is to get workers to blame themselves or to try to claim somehow Americans suck in math, science, education or whatever.

It's all statistical fiction.

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Full agreement, but with reservations...

But my experience, there isn't anyone over the age of 30 who doesn't know about offshore outsourcing, labor arbitrage, age discrimination, guest worker Visas and the media is the corporate controlled spin machine.

I completely agree about specific media targeting of the most ignorant, insane, illiterate, etc., to make their fallacious points -- we've all witnessed it countless times now.

BUT, I am witnessing far too many Americans today (and I no longer count them as my "fellow citizens") who are, and remain, virtually clueless. Be it the Californian woman I heard on NPR some months back declare her senator, Feinstein, to be a "progressive" -- and later recognize her voice when she's relocated out of state, then declaring her new (Bush-dog dem) to also be a "progressive" -- or that guy in his '50s, a PR professional who, completely oblivious to everything you just mentioned (in your quote), published a book urging American corporations to hire the older Americans due to their experience.

Geez, age simply no longer enters into an equation when they aren't hiring ANY American workers. Now many simple-minded types are proclaiming the problem in Washington to be "prejudice" -- as to why President Obama can't fill all his appointments due to neocon Shelby's holding them up.

But wait! Does anyone really, actually care (assuming them to be ethical Americans) whether Obama appoints yet another Diana Farrell, Larry Summers, Gary Gensler, Timmy Geithner, or Eric Holder, who has continued on the policies and programs of Alberto Gonzales!

Truly, is there any authentic dem or American who truly agrees with AG Holder? This guy's record is truly a slimefest to the first degree (worked against Gov. Segalman of Alabama, allowed Birkenfeld to be jailed, continued on with other Gonzales and Bush programs -- sure he talked real cheap about torture programs, but have any stopped? Negative -- just relocated elsewhere.).

No, I have to state that we are beset by too many people in this country who simply can't be bothered to know anything about their country, its economy, history, government, lack of legal system, etc., etc., etc.

And I don't have the time, and you don't have the hard drive space, for me to elaborate on my experiences with union officials. With the exception of that Canadian fellow, Leo Gerard (of the Steelworkers), who is incredibly knowledgeable, many of them are simply clueless.

(I had to explain to one reasonably intelligent fellow what the importance of the NY Fed was, and why they stuck that NY union guy in as its interim chief.)

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objective info, facts

So amusing anyone in their right mind would think Feinstein is a Progressive, more evidence on how the term is used as political soup when convenient.

Well, that's one of the reasons EP exists so we can get people learning and talking about the real facts, real data, real details.

I literally cannot watch more cable talking heads. Hardball has to be the worse. If it's empty and trivial, you can bet it will be beaten into the ground during the 24 hr "chant mantra" news cycle which seems to have almost an agenda to try to divert people to meaningless terms and phrases and then pound on the empty trivial political event du jour.

So, ok, CNBC has 220k viewers per day. How do we grow EP to get 220k participants a day? That's the real question. How do we get people to turn to discussing real statistics, events and get their facts on straight instead of watching idiots like Glenn Beck?

He really irritates me because he takes some factoids, even gets some real economists and people on the show....
then somehow spins that to embrace yet another corporate agenda....i.e. kill health care reform, social safety nets are bad, "free" markets with zero regulation are "good" and so on.

The guy is scary because he can spin facts to try to endorse yet some pre-written corporate lobbyist agenda shopping list.

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WPA, multipliers, ranking of "bang for the buck"

Maybe a nice post would be to do a "bang for the buck" ranking of various programs and proposals but pay strong attention to the details because that's often where the sieve is in terms of gov. exp. just turning into spending vs. Stimulative effects.

I think we wrote up 3? WPA posts plus at least 3 FMNs.

So obvious, such great results. I would claim the AAM proposals are "WPA like" at least in terms of projects...

but management, who maintains these details, is efficient, vs. just handing out grants through no-bid contract award systems to 3rd parties...

the WPA was managed and run by the U.S. government with strong accounting measures....

and it's those project management details, the fact they did direct hires for a lot of those...which I believe dramatically increased the bang for the buck.

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Can we just call the senate the comedy shop?

Word is that Sen. Reid is scrapping the 'bipartisan' jobs bill and is rewriting it himself - remember the last time he did that (health care reform). What a joke? Why:

Baucus had stuffed the bill with many provisions that Democratic senators thought went beyond the goal of creating jobs, such as $31 billion in extensions to expiring tax provisions, including the research and development tax credit. That and other tax cuts were included to win GOP votes.

Democrats complained the bill did not focus enough on job creation.

Amazing. But what's is even more funnier and doesn't say much for Obama Administration - is that this morning they were publicly praising this weak ass 'jobs bill':

The President is gratified to see the Senate moving forward in a bipartisan manner on steps to help put Americans back to work. The draft bill released today by Senators Baucus and Grassley includes several of the President’s top priorities for job creation, including a tax incentive to encourage businesses to hire, a tax cut to make it easier for small businesses to invest and expand, further measures to keep people at work repairing our nation’s roads and bridges, and extended unemployment insurance and health care assistance for Americans who are out of work.

Maybe, Washington is the comedy shop.

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Comedy show, advanced R&D tax credit

I'd have to read the advanced R&D tax credit on how it's implemented. This is actually reasonably important, although in my view they have so screwed up investment in advanced R&D in the last decade....but innovation, breakthroughs do generate new industry sectors jobs.
But...only if it keeps the research in the U.S. and tied to U.S. citizens, LPR (probably a conditional labor test since this is advanced R&D), and doesn't incentize the opposite...i.e. it's a tax savings to use this credit, yet offshore outsource the actual R&D (which they have done in droves, it's disgusting).

So, while I think Harry Reid is the ultimate corporate Dem frankly maybe this one isn't such a bad thing.

From all of my reads on the "jobs" bill it was a complete, ineffective joke, about all it really did was extend again unemployment benefits.

Maybe we even have a prayer's chance of getting some infrastructure, direct jobs going.

Or the conditions Buy American, Hire America, which are important. I'd go for an amendment retroactive on ARRA to add that.

But watch them not pass anything. I think they need to get those bought and paid fors running committees plain out of their chairs and put in some of our Freshman Populist/Progressive Dems, who ran and won on middle class issues.

These committees and the chair are way too powerful and they can kill anything, which they have!

It's like Committees are where all great ideas go to die.

One of the worst crimes is the destruction of corporate R&D labs. I believe the U.S. is still running off of many of the innovations which came from Bell Labs, which is now destroyed. Hughes too, the entire Satellite technology, but Bell Labs is Linux, the cell phone, the computer processor, transistors, data/signal compression....
the list goes on and on and about 2002 was the true end...
literally these labs fired people with 50+ deep patent portfolios during the mass "let's offshore outsource all of the jobs" agenda.

There is no way to innovate to that level without serious culture, environment and financial support.

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details on Harry Reid's joke of a jobs bill

He's whittled it down to $15 billion.

This is a joke, you're right.


The $15 billion bill includes a $13 billion payroll tax break for employers who hire new workers; $35 million for small business depreciation; $2 billion for "Build America Bonds" for infrastructure; and a one-year extension of the highway bill

It looks like even unemployment extensions are gone.

A bond? One of us needs to flesh out this one and if it is just another debt placeholder.

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Trickle Up Not Trickle Down

I'm in complete agreement but even the most liberal among the politicians don't say trickle down but vote for it.

Everything has to do through a government bureaucracy or come from some mighty connected company before it reaches someones hands (whats left of it).

The problem as always is those that are in power are displaced from everyday people to such an extent that they are clueless.

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