Nouriel Roubini and Michael Moran: How Obama can save the economy from going back into a tailspin

[Better Believe It]

Avoid the Double Dip
How Obama can save the fragile economy from going back into a tailspin.
By Nouriel Roubini and Michael Moran
October 12, 2010

Roughly three years since the onset of the financial crisis, the U.S. economy increasingly looks vulnerable to falling back into recession. The United States is flirting with "stall speed," an anemic rate of growth that, if it persists, can lead to collapses in spending, consumer confidence, credit, and other crucial engines of growth. Call it a "double dip" or the Great Recession, Round II: Whatever the term, we're talking about a negative feedback loop that would be devilishly hard to break.

If Barack Obama wants a realistic shot at a second term, he'll need to act quickly and decisively to prevent this scenario.

Obama will face an increasingly partisan and divided Washington over the next two years, but he can take steps to reduce the odds that this dark double-dip scenario comes to pass. This will, of course, require deft politics. To that end, the administration should focus on policies that create a revenue-neutral fiscal stimulus -- one that targets both labor demand and consumption.

Start with the one thing that everyone loves to hate: taxes. Forget the political hot potato over the size and shape of the cuts -- there's an easy way to do this. For the next two years, Obama should reduce payroll taxes for both employers and employees. The reduction for employers will lower labor costs and allow the hiring of more workers; for employees, increased take-home pay will get people spending again. It's not just about increasing foot traffic in the mall; households need to pay down the burden of credit cards, second mortgages, and other legacies of the years of easy credit.

How can it be funded? By allowing George W. Bush's tax cuts for people making more than $250,000 to expire while keeping in place those for middle- and low-income earners -- the vast majority of Americans. And whatever trickle-down Republicans in Congress say, Obama will have to remain firm on this.

It's high time to hold U.S. financial institutions to account. The very companies that benefited from the billions of dollars of taxpayer stimulus are currently building up huge cash reserves -- in effect, overinvesting in capital at the expense of jobs. Taxing this capital would reduce the relative cost of labor and get companies hiring again.

Only a tiny percentage of Americans will end up paying more: the highest-income earners, who have already benefited greatly from the service the government (read: taxpayers) rendered to their brokerage firms and investment banks in 2008. Republicans may rail against increasing taxes on any American, but the complaints of the wealthy, in today's economic climate, will have little credibility among middle-class voters. In exchange for this increase, Obama can fashion a large tax break for employers and employees that jump-starts consumption, encourages hiring, and reduces the risk of a double dip -- all without busting the budget.

Read the full article at:

http://www.foreignpolicy.com/articles/2010/10/11/avoid_the_double_dip

[Nite Owl]

1. If Obama would just hire

Roubini I could have some of that hope again. It would be so good for the country and this is what people expected of him when he was elected.

[Zax2me]

2. Rec. K&R

[Winterblues]

3. "To Dream the Impossible Dream"

:shrug: It is not the American way... America is ONLY about Profit. In no way can Government get in the way of Profit..Otherwise we may be like Canada or all the other westernized nations in the world...