18 January 2008

Towards A Healthier Economy

Politicians of all stripes see a recession coming and are hot to devise a stimulus package to fend it off or mitigate its effects. One proposal with bipartisan support is the bread and circuses approach of simply sending everyone in America a check for a few hundred dollars to boost consumer spending. Other common proposals include temporary tax cuts (greater latitude for businesses to treat capital expenditures as an expense is particularly popular), increased spending on public works, and having the federal reserve reduce interest rates.

There are many more things we could do, however. Here are a few, in no particular order:

(1) Loosen immigration rules for skilled immigrants. Brain drain is good for the American economy. A majority of the physicians in parts of upstate New York are immigrants. Skilled immigration doesn't steal jobs, it creates jobs. There is no reason that we should be turning away college educated or highly skilled immigrants at a time when our economy needs a boost.

(2) Increase staffing in the civil courts. The non-criminal part of the court system works more slowly than it could, because of a shortage of judges, and enforces judgments less swiftly than it could, because of a scarce supply of law enforcement officers charged with enforcing civil judgments. The delays increase the cost of credit and produce uncertainties that are a drag on the economy. One could double the staffing of the courts for a tiny cost in the overall budget picture while dramatically improving the speed at which civil cases move though the legal system and the supervision they receive from judges which can reduce the costs of litigation by forcing litigants to behave reasonably. The costs of these delays are hidden, but almost certainly are far in excess of the public costs involved in hiring more people in the judicial system. If our system can resolve serious felony cases in months, surely it should be able to handle large contract disputes and personal injury cases with similar speed.

(3) Disallow most non-competition agreements. Non-competition agreements are bad for the growth of the high tech economy because they discourage the interchange of ideas that on average is good for everyone.

(4) End the priority for tax debts in bankruptcy. The priority afforded to tax debts in bankruptcy is one of the main reasons that attempts to reorganize small businesses in bankruptcy courts fail. These debts are often the straw that breaks the camel's back and forces an end to an otherwise viable business. Why should the IRS have greater priority in bankruptcy court than, for example, trade creditors? I seriously doubt that small business bankruptcies are an important source of federal revenue, and the costs of this priority in terms of lost future revenue are real.

(5) Temporarily reduce public college tuition. Recessions are characterized by high unemployment. One way to mitigate that is to encourage people on the brink of deciding whether to go to college or enter the workforce to go to college. This eases unemployment in the short term, and increases the skill base of the labor force in the long term.

(6) End the "paperwork upfront" policy in bankruptcy. Until the 2005 reform of the bankruptcy laws, debtors could file their petitions first (preserving assets for the bankruptcy estate) and file paperwork later. Now, debtors must file paperwork and obtain credit counseling before filing for bankruptcy, even if these means a windfall to a creditor foreclosing on an asset with equity which could have been available to other creditors or the debtor. Allowing debtors to preserve assets before all the paperwork is done would allow more people to get their fair share out of the bankruptcy process, without changing the substantive changes enacted in 2005 to prevent abuse of the bankruptcy process.

(7) Give shareholders a meaningful vote in board of directors elections. Senior management in companies that are doomed to fail continue business as usual long after this makes economic sense. This wouldn't happen if senior management was more accountable to shareholder interests. The best way to align the two interests would be to give shareholders the right to much more easily nominate candidates for the board who are independent of management, rather than the Soviet ballot that prevails in director elections now.

(8) Create guaranteed jobs. Recessions are marked by period when there are lots of people who are able to work who can't figure out what to do. One of the classic response -- unemployment insurance -- involves a massive dead weight loss to society as hundreds of thousands of people fill out paperwork requesting benefits and thousands of government employees process it. No major municipal government I am aware of has a shortage of work that need to be done. Why not simply create a pool where any able bodies person can show up with little or no paperwork and do a day's work for a day's pay, at minimum wage, doing whatever the government can find for them to do? Unemployment is fundamentally a shortage of entraprenuership. In good economic times, there are few people who can't find work for more than the minimum wage, in bad economic times there are many. When the private sector fails to create jobs, the government could step in and do so. Even if worker productivity is so low that the program doesn't break even, it would probably be cheaper than a handout and involve far less deadweight loss. Also, on the "idle hands" theory, people who are working are less likely to engage in crime, fall into alcoholism, or become discouraged about their ability to work, if they have work made available to them.

(9) Create affordable alternatives to lenders of last resort. Small, short term lending involves a much lower default risk than most people assume that it does. A huge payday loan industry has arisen as a result. A non-profit program that offered similar loans at rates that reflect the real risk involved could put loan sharks out of business and allow people on the edge to use their money to get back on their feet rather than to pay off predatory lenders. It might have to be subsidized, but the subsidy would be modest, and the number of people who don't lose their jobs or their cars or don't feed their children well as a result, would make the cost well worthwhile.

(10) Shorten statutes of limitations for debt collection actions. Most states allow debt collectors (mostly representing big businesses like credit card companies and banks) to collect debts that defaulted six years or more ago, while allowing a much shorter period, often as little as two years, to bring suit for personal injury cases. Why should society protect creditors who sleep on their rights for so long, when they are usually in a much better position to be aware of a default than a personal injury victim who might not be aware of the extent of their injury until long after they are hurt?

(11) Speed processing of paperwork for new businesses. The months that it can take to get permits for a new business can make the difference between success and failure. Devoting more staff to those activities creates good jobs, while ending the hidden costs associated with delays in government services necessary to create new jobs. Often the regulations themselves aren't unreasonable, but the delay in getting through the process is unreasonable.

(12) Increase awareness of existing benefits. Many economists think that increased government spending helps the economy in a recession. But, why create new programs that do so at random, when existing programs that meet important needs exist and are underutilized? Among the programs often underutilized are Medicaid, children's health insurance, and the earned income tax credit. A little extra publicity for programs like these could go a long way without requiring a change in the law.


davebarnes said...

Excellent ideas.

Mine is: repeal one regulation for every one you add.

Wadey Tracey said...
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