Investments in an array of areas -- including energy, education, infrastructure and health care -- offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national challenges and put our economy on a solid footing for years to come.
This does not sound like a short-term plan to stimulate the economy. It sounds like a long-term plan to stimulate bigger government. It is economic policy according to John Kenneth Galbraith.
From a stimulus perspective, the timing of this public-sector investment strategy is off. Relatively little of the spending is likely to take place in the first three quarters of 2009, and most of it is likely to take place after the recession has ended. Furthermore, there is no exit strategy. When will the pace of government investment be cut back? I would not hold my breath waiting for government officials to say, "It looks like we have run out of good projects. It's time to cut back public investment and increase private investment."
Instead, I would like to see an immediate and permanent cut in the payroll tax. In the short term, let the deficit go up. In the long term, finance the payroll tax cut by phased-in increases in fuel taxes and in the age of government dependency (known as the retirement age).
The cut in the payroll tax would quickly attack the short-term job creation problem on both the demand and the supply side. It also would be more reliably helpful to the broad middle class.