Attention Keynesians: What's the best way to increase demand?

Okay, so even non-Keynesians can contribute, but the intention here is, given the American economy is demand-driven (we have all the supply we'd need for a while), how does one go about increasing demand to hasten economic recovery, or even renewed growth?

Some good starting points: Transportation. From renovating highways to constructing mass transit. As someone who works in the city but lives in the greater metropolitan area, mass transit is terribly important. Even though I own a car it's simply cheaper and more convenient for me to take the bus or light rail into town. Now if I could just hop on a high speed rail and travel from Baltimore County to DC in 10 minutes, that'd be even better.

Investment in mass transit and communications would be wonderful. Also, renewed aid to the states. Right now, people aren't buying because they're either out of work or afraid they're going to be out of work. Untargeted stimulus can help, but more effective would be targeted investment in areas that can lead to further growth later.

The US generally has the same infrastructure issues as Canada. In the heavy urban areas, there's no trains to take you from city to city. The major highways are heavily congested. The energy grid is in need of repair and upgrades for transient energy sources (solar and wind mainly), as well as power stations for electric cars. In-city congestion is one of the biggest things to improve that vastly reduces business costs.

Infrastructure upgrades/repairs generally get you the most bang for buck.

Problem being that Republican-controlled States are rejecting the projects—either out of fear that they can't maintain them on their own or for anti-Keynesian ideological reasons.

It's not possible to do stimulus to the States if they're just going to reject it...

That would be nice....if we didn't have the problem called the other 90% of the country that cannot feasibly implement such systems. How does a high-speed rail line project in Maryland/DC help out folks in Colorado and Wyoming who have a lot of towns in very isolated/rural areas very far from the mass transportation hubs that are called cities?

The biggest problem with today's economy is uncertainty. People don't spend or demand as much because there's no stability in the job sector and government action of the last 3 years hasn't done a thing to bring certainty to the job sector. (Otherwise we wouldn't be having 2+ years of 9% or worse unemployment rates)

Increasing demand will come when certainty is restored to the jobs market. How do we do that? Abandon all schemes of any new regulation for 2 years minimum. If need be, adjourn Congress until after the 2012 election. (But that's probably not feasible owing to that niggling thing called the debt.) That will instill some certainty in the job sector because it means government won't be trying to barge in on your business when the economy still is at its weakest. To instill further certainty in the job sector, that requires a repeal of at least the mandate portion of Obamacare. 2013 is hanging over the heads of business owners everywhere and that's not some nebulous far away date. That's factored on the medium and long term plans of everybody in business today. (Seriously, with that mandate set to come into effect in not so long from now, it asks the question, why bother hiring anyone if its going to cost me 20-50% more per person in 18 months anyways?)

Nationalizing health care won't introduce certainty to the jobs market. Mass transit projects in politically vocal coast cities won't do it either. While the latter is a nice thought to do as something to do regardless of economic situation, it is not the (sole) answer to today's economic woes.

@Tom

That won't work. Corporations know that taxes are going to go up eventually, that they have to, even if there's a two year window, because any further is unsustainable. Two years is how much time it can take new factories to be built sometimes. Rather, hammer out exactly what those regulations are going to be soon. That puts stability into place.

^ That's the other alternative. The two year moratorium on any proposed new regulations is simply more politically viable given the current election season.

That answer's obvious. Major spending in infrastructure: For starters, it creates a shit-ton of jobs. Yeah, they're government jobs, and they're temporary, but bear with me:

These guys who now get their stimulus jobs get to spend money on stuff. Demand rises: Then demand creates private jobs. Then the infrastructure-related stimulus jobs can be phased out with no ill effect.

Sure it's expensive, but it's no more expensive than tax cuts to the rich or bailouts to banks.

It's more politically viable, but it won't increase certainty at all.

^ Actually it does. It gives businesses time to realize that for 24 months, the government is off their case and they won't have to factor in being fed to the court of public opinion to pander for a few measly votes out of Ohio. A lot of businesses will see that as a complete break and a chance to get something started up.

Nobody's saying "let's build factories everywhere!", we have too much excess capacity in the market today for that. Let's put the moratorium on regulations out there, if need be with the caveat, "you have two years with us off your case, use it wisely and start hiring or we'll kick your ass when that time's up" just so we can get the ball rolling in the short term to begin building in the medium and long term.

Remember, short term uncertainty is the driving force why this economy remains so bad. Remove the government aspect of short term uncertainty and then there's no real reason for businesses not to hire lest they suffer consumer/political blowback by/at the end of that two years.

Resolve the mortgage crisis. This is actually very doable- it involves rewriting the bankruptcy laws so that families can restructure their mortgages and keep their houses. Then make it easier for financially secure young families to get a mortgage (right now credit is really tight). Housing security would contribute to the perceived financial security of middle class families and help convince people to begin spending again.

It would also probably help if they stopped building more houses if nobody can afford/wants to buy them...

Raise the minimum wage.

@Tom: When you're regulating and such, do you plan to re-regulate when things com up? Becase that's what caused the Reagacession.

I don't see what uncertainty has to do with anything. Canada has been suffering through the most politically unstable time period for the last decade and what has that done to dent our economy? Nothing. As much as Tories like to claim that a strong majority government makes a difference it doesn't. What shit does an employer give about who's in power? You can start to name random stuff that random politicians did but realistically, it doesn't have much effect.

Infrastructure dollar spending has proven effects. And it's not 90% of the country where it doesn't matter. The majority of Americans live in urban areas. Do you have an electric grid? Then the stimulus spending affects you.

edited 6th Sep '11 7:45:41 PM by breadloaf

Although I agree that the majority lives in the urban areas and therefore takes precedence, everyone is important and should somehow get a benefit out of this kind of spending.

I don't know what to tell the farmers, though, since their entire industry being solvent is a lie based on government money. At least I can call them out for being hypocrites if they say government spending is bad, though.

Breadloaf Canada's msot politally unstable time was the 60s and 70. Now is pretty good considering there's no talk of secession.

edited 6th Sep '11 7:51:55 PM by Erock

USAF, actually that was my other point :P

Farmers get a bajillion dollars in subsidies and the entirety of the US food aid program is nothing but a subsidy to American farmers (the food that the US delivers to other nations isn't even free, it's sold to the poor at a price which undercuts local farmers).

So considering they already have an extensive government transfer program, I think it's perfectly okay for the vast majority of the stimulus to affect urban areas and a much smaller proportion used to help out farmers. In this case, I think you might want some kind of small-business farmer, organic or enviro-friendly based subsidy to farmers rather than an output based one.

EDIT: @erock

I mean "of recent years" but I figured you get what I mean.

edited 6th Sep '11 7:52:02 PM by breadloaf

Think about this, if you are business owner with the power to hire people and possibly have a need to hire, do you still hire if you don't know what new taxes or regulation is in the short to medium term? For most business owners in this country, this is a solid no.

Then think about the demand level. If consumers are not certain that their jobs are going to be there next month (possibly because of government uncertainty keeping the thought of raises out of the question), will they spend their money on large expenditures like cars or houses? Again, for most folks that's a solid no. At this level, there needn't be anything wrong with their job security for there to be uncertainty about their job!

It's an interesting argument... with empirical evidence to suggest it doesn't actually happen.

USAF farms are actually doing very well, they don't need subsidies. Farm income went up 25% last year.

A certain degree of subsidies to maintain food security is fine, but the US passed that point long ago. Corn prices are through the roof.

Not... entirely, no. Whether business hires or not isn't actually based, primarily, on whether there's regulation or not or even whether the demand is there or not.

For example, my parents are in one of the most regulated industries in the US—gasoline/ethanol transport—and yet barely have anyone on payroll. It's not really because of the regulation or a lack of demand—because there's a shitton of demand, mind you—but because it's really fucking difficult to get things rolling.

Start-up costs suck. To by another truck and trailer is several tens of thousands of dollars. But once we get that, we can meet the demand and start making lots of money. It's the "getting there" part that stops us from hiring...

Edit: Corn prices are through the roof artificially due to ethanol development. It's basically a very well-structured bubble...

edited 6th Sep '11 7:58:30 PM by USAF713

Yes and no. If demand is stable but regulation and tax possibilities are uncertain, it is just as much a disincentive to hire as weak demand. Why? It all comes down to costs. If the perceivable cost of a new hire is likely to suddenly and drastically increase (whether numerically it does or not) in relation to the business' bottom line is too high a hire is a no-go.

I know all about the hiring game anecdotally too. My father is the plant manager for a petroleum distributor able to cover an area just under 1/4 the size of the state of Colorado. (Which from a corporate/business standpoint isn't that big.) He and his boss are hesitant to hire even though it's freely admitted they are short handed. Why? Because they don't know what the future is going to bring whether any new worker will be worth a damn or whether the state will be hounding their asses or a number of other factors including demand.

edited 6th Sep '11 8:04:53 PM by MajorTom

Thread Hop: massivly expand space exploration. And gutting the arts.

For what it's worth the concept of people making decisions based upon quite arbitrary future unknowns is quite economically irrational. Not to say that it never happens, but quite frankly, those people probably have bigger axes to grind than a few regulations.

In fact, I think it actually happens quite a bit, but we're getting into the weeds of concepts of sick, twisted societies and...I want to say conspiracy theories but that's not it...people acting like spoiled little brats. That's it. But, I see no reason to believe that lowering regulation is going to make them happy.

Anyway, best way to increase demand? Here's a couple of ideas. Infrastructure spending, a modest raise to the minimum wage, job-sharing programs, furlough/retraining programs,

There are some other ideas, like dropping money out of a helicopter, metaphorically speaking. Mailing everybody a check. I'm not as much in favor of these things as they're less structural, and more short-term rather than long term. I'm into increasing the job/wage base in order to increase the amount of money that's paid from corporate coffers into wages. This might hurt marginal small businesses, but I also support methods to help them out as well.