Economists and politicians have offered two potential solutions to the economic woes in both the United States and Europe:
  1. Austerity budgets that will kill the economy.
  2. Continued deficit spending that will kill the economy.
Of the two options, killing the economy later is better than sooner. But either way, we're still dead. And this fascinates me about the debate: All informed adults assume we're dead either way. I haven't seen an economist map a way that we could keep overspending and later inflate our way out of the massive debt without causing a new set of problems just as dire. And economists generally agree that cutting government spending is the equivalent of pulling the plug on a comatose economy.

If you can't keep spending wildly, and you can't spend any less, what option remains? Allow me to trot out a third option that might work for the United States. Some of it will look familiar but I'm adding a new layer.

Let's start by agreeing that the amount of risk that either a person or a country should take is driven by circumstances. A prosperous country can afford to have many workplace laws and regulations to keep everyone safe. But if the world is on the verge of economic meltdown, you might accept some elevated risks in order to benefit the greater good. In general, bad times increase your options. Even a gridlocked and constipated government can make decisions when death is knocking at the door. (At the moment, death is merely walking toward the porch.) So while your first reaction to my plan is that our government could never act so decisively and creatively, I would suggest we are nearing a point where the only choices will be drastic and out-of-the-box. We're almost there.

My economic plan is for the government to pass laws ordering banks to turn all foreclosed properties into a specific type of rental. These homes would be reserved for foreigners that have highly valuable economic skills and a desire to live and work in the United States. At the same time, the government would ease restrictions on immigration, but only for the most skilled workers.

For the most part, the new immigrants wouldn't be taking jobs from Americans because there are always job openings for the top talent. The biggest tech companies are always begging for engineers. No employees of McDonalds will be replaced by the influx of foreign talent.

The new laws would also require that the foreign renters give all of their banking business to their landlord banks. The law might even have a clause that says the renter must someday get his first mortgage from the same bank, at a competitive rate, should he eventually buy a home. Buying a home would be the only path for a foreign renter to get out of the bank-owned rental market after say three years.

Banks don't want to be in the business of property management, so let's assume this idea creates a bunch of new jobs to support the rental properties. You'd need someone to qualify renters and help them move in. You'd presumably need lots of repairs to get properties into rental shape. And you'd need ongoing service and repair work because renters don't do their own home maintenance.

The government could also require the foreign renters to hire local housecleaners, to use local carpet cleaning companies once a quarter, and that sort of thing. That creates more jobs. Imagine also that the government loosens restrictions on cooking at home and selling food. And let's say the new renters are required to use these personal chefs at least twice a week. That's more jobs. Obviously I don't have the details worked out, but the basic idea is to compel the highly-paid foreign engineers to pour money back into the economy in ways that create jobs.

Next, the government could require banks that own foreclosed properties to install photovoltaic systems on each property that has the right kind of sun exposure. The estimated monthly energy savings would be tacked onto the rent, effectively financing the solar systems. Rental agreements would spell all of this out, including a warning that there might be people doing work on the roof for a week. That will create more jobs in the solar industry.

On day one, this new set of laws would stabilize the real estate market by sucking up the foreclosed properties. The big tech companies might find themselves hiring foreign engineers that rent homes in one state and work in another, just to take advantage of the loophole to hire talent. That's okay too.

In the long run, the influx of engineering talent should give the economy a nice boost. America's largest untapped resource is the fact that people want to live here. In normal economic times we can indulge our irrational fears and biases about outsiders. But as doom walks up our porch our appetite for risk increases. The unthinkable will turn thinkable.

I'll stipulate that my plan has flaws. I'm using it to illustrate a bigger point, that the "third way" out of our economic gloom will reveal itself as our appetite for risk increases. Desperate times require risky solutions. We might impress ourselves with our own creativity in the next year. I hope so.
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Jul 1, 2012
my take is that different facets of society have different abilities. you cant get blood from a turnip.

it drives me crazy when talking heads ask 'what will romney do for the economy?'.

economic success is a function of the private sector. looking to politicians to solve this is like trying to get blood from a turnip.

perpetuation of civil liberties is a function of legal system and law enforcement. national security is function of military. the brains of the operation, politicians, can impact our civil liberties (only in negative way, they cant make something out of nothing) and our national safety.

looking to politicians (govt) to solve economic woes is asking for a decrease in real liberty.

they can help but only if they transform themselves into the vehicle that controls prosperity, the private sector. crossing that line means a massive reduction in everyones liberty.
+3 Rank Up Rank Down
Jun 6, 2012

I never comment on your blog posts, but this one I'm particularly capable of providing feedback about because I'm a foreigner engineer who has a high-paying job in the U.S.

I came here with an O-1 (Alien of Extraordinary Ability) visa, and lots of companies keep hitting me on LinkedIn to try to get me to work for them. I have several friends like me in my native country, Brazil, and I actually think your idea is good and could help attract a lot of top talent to the U.S.

I do think that the bureaucracy involved in enforcing the rules would end up costing too much (and putting resources into supporting bureaucracy that doesn't produce anything useful for the economy). But maybe this part wouldn't even be necessary. For example, even not being forced to, I already make a point to by American products and support local businesses as much as I can, because it's my way of giving back to the community. Just make it easier for engineers with demonstrated abilities to move here, and the local economy will be automatically get a boost (both with better products being launched and us spending our money locally).

In Brazil we are not big fans of DIY, and here in the U.S. we happily hire local people to mow our lawn, paint our walls, and clean our carpet without being required to.
Jun 6, 2012
There's lots of places the US Government could save HUGE amounts of money:

a) Stop building crap like F22 Raptors which are completely useless/unnecessary

b) Stop all the "wars !$%*!$%*!$ eg. the war on drugs achieves nothing, costs a fortune billions of dollars ends up on Colombia instead of the USA because of it.

c) The TSA

c) Stop all those pointless wars in Afghanistan. With the money they've spent on that (about 10 trillion) they could have achieved nuclear fusion, solved the world energy crisis, housed the poor, and generally made the entire world a better place.
Jun 6, 2012
Hello Scott,

Not that I don't think your idea is a great one, but it might not be entirely yours. I think a very wealthy lady in Australia has beat you to it! Gina Rinehart (Australia's richest person) has just recieved agreement from the government that she can bring in up to 1700 skilled foreign workers so she can get a quick start on her $9.5 billion mining project. It's a new type of visa for skilled workers who will work in remote areas (not many bank owned rental houses in those parts) .

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Jun 5, 2012
Sorry, too much micromanaging which the government rarely does well and I doubt it is enough to make a measurable difference in the economy. If you go that route the simple thing to do would be to allow employers to hire outside the US those types of jobs can't be filled for x number of months.

The real way to improve the economy is how the US got out of the Great Depression (without the war part). There was so much gov. spending during WWII that there was really no unemployment once the US became fully involved in the war. The war spending required rationing and price controls which means there was way too much spending to stimulate the economy, so yes I believe the government can take spending too far which is obviously not what I'm recommending.

There needs to be spending on infrastructure (bridges, roads, locks, ports...) and research such as Alzheimer's disease that can benefit everyone for decades. This spending needs to be temporary until the stimulus is no longer needed. To pay for it without adding to deficit would require everyone earning over a certain amount (say $250,000) to pay at least what they did before the Bush tax cuts. There will be simpletons that say increasing taxes on the people earning money in the higher income brackets will hurt the economy, that would be a false statement because every dollar taken would be sent back into the economy to create something for everyone which would then turn over many times instead of being sent into the stock/bond markets which do little to stimulate the economy (which I have personally done since having an extra $1000 from the reduced SS taxes currently in place doesn't impact my spending).
+1 Rank Up Rank Down
Jun 5, 2012
Nice idea. The only problem is that there are a lot of people who aren't even smart enough to UNDERSTAND this.

[It's an interesting psychological phenomenon. Any idea that doesn't fit the binary political worldview is as good as invisible. -- Scott]
+6 Rank Up Rank Down
Jun 5, 2012
Scott, i generally like your post, its clever, but i have a strict improvement on your plan:
The government would ease restrictions on immigration, but only for the most skilled workers (engineers and stuff). THE END

Remember that me breaking a window, "creates" a job for the window repairman, BUT is likely a net negative to the economy.
This point is KEY. Don't ignore hidden costs... everything else you suggested is breaking the window except for easing restrictions on immigration.
Jun 5, 2012
I don't agree with all of the ideas you laid out, but I don't think that's the point. The point is that you're throwing out creative solutions to our problems and creativity is desperately lacking in the US government. Adams for president!
+2 Rank Up Rank Down
Jun 5, 2012
Big problem: you're assuming highly skilled folks are so desperate to live in the US that they'll put up with all sorts of ridiculous conditions, the humiliations of the American bureaucracy via the visa system and so forth. Would an American put up with all this to move someplace else? No way. It's the same here. I'm staying home, in India.
Jun 5, 2012
Interesting. When I'm logged in, I can see my comment (one that is somewhat critical). When I'm not logged in, it vanishes.

Why would that happen?
Jun 5, 2012
IMHO, the only viable third option I see is to play the longer game and invest in education and infrastructure. Improve the quality of school education in US and ensure the next generation of American college students are as competitive or better than the immigrant students the universities and industries are craving. Improving the country's competitiveness is the only way in which we can avoid a future catastrophe.
Jun 5, 2012
A few neat ideas.

Solar is pretty questionable, though... Panels have finite lifespans, the charge controllers, batteries, and sine wave generators are expensive. Batteries have very short lifespans ~ 5 years. You often seem to think that there's a workable solution in alternate energy that can be wrestled through, but for the most part, it's still fantasy.

A person using solar energy today is actually burning more fossil fuels than a person just living on the grid (largely because of the energy cost in manufacturing solar cells, batteries, etc). If it takes a gigajoule of petroleum energy to produce half a gigajoule of solar energy, the net effect is that you're burning petroleum twice as fast.
+4 Rank Up Rank Down
Jun 5, 2012
Dear Scott,

I know you have caveated yur article saying there are bound to be flaws in it. So I am not going to nitpick here and point out something you already know. But one core point - you are eroding the attractiveness of the US for skilled foreigners by increasing the indirect taxes on them. The laws you suggest will make the whole scheme unattractive to any foreigner and thus falls your entire proposal.

The economy can be fixed only by setting the basics right once again. As long as you continue to operate in a system where the flaw is in the basics of say the financial system, the healthcare system, the social security system, problems will never get resolved.

Sometimes its best to let things wash off and start with a cleaner slate. Its the cycle of time. Happens to every economy. Look at Britain.

- Weyes
-9 Rank Up Rank Down
Jun 5, 2012
I have the third option, too. And it comes in a form of a question: Why not force the people who created this crisis (because of their greed) to pull us out of it?

That means taxing the rich extensively for a period of 5 years or give them an option to invest 25% of their wealth in common good (infrastructure, schools etc.) today, if they oppose big government.

Or the government could take over the subsidized banks who continue to give outrageous bonuses to their executives. After all, the only ones who have the money right now and could invest are the rich (or so called job creators), but they're not doing so because "the economy is weak".

The point I'm trying to make is two-fold:

1) The rich have the money, but refuse to invest it.
2) If you force them to choose between what's bad (for the rich people) and what's even worse, they will choose bad. We just have to give them a choice - do they want to be a little less rich or to lose everything (in a revolution, let's say)?

After all, if the poor need to have two jobs just to stay afloat, you could use a little socialism!

(The "people who caused the problem" are the voting majority. That's who is in charge of regulating, taxing, and spending. 99% of the rich didn't screw anyone. -- Scott)
Jun 5, 2012
That sounds like a plan. But it revolves around the idea that people want so much to live in the US -- but your Government is making sure to screw this up too by harrasing everyone at the airports, enacting homeland spying laws, and allowing special exception laws based on the terror threat.

I still think the US is a great place, but this perception seems to be changing. Other places in the world seem to be developing in another good direction.

Unless you are a starving Pakistani engineer (apologies for pinpointing this way, but take it as an example) you might just want to stay at home.
+10 Rank Up Rank Down
Jun 5, 2012
One minor problemette - if the US is anything like the UK, most of the empty, bank-repossessed properties tend to be in particular areas: poor areas, with high unemployment and few job prospects. Most of the well-paying, unfilled vacancies tend to be in particular areas: well-off areas, with a real concentration of tech or engineering or financial services companies. These are not the same areas. Areas such as London, Cambridge, and Aberdeen have maintained a fairly bouyant housing market throughout the crises of the last 4 years, where no house stays empty for long.

In the UK, this means that the highly-skilled immigrants (on top of all the other lifestyle requirements this plan imposes) will face a 3 hour commute to work each day, and back again. And the UK is a geographically small country. I'd imagine, in the US, the commute from repossessed home to high-paying job will be quite a lot further.
Jun 5, 2012
Scott, you're an economist by training, right? If you think the only possible options are either austerity or deficit spending, then you need to learn more macroeconomics. In particular, the growing influence of the Market Monetarists such as <a href="http://www.themoneyillusion.com/">Scott Sumner</a>, with their idea of having the Fed <a href="http://www.nationalaffairs.com/publications/detail/re-targeting-the-fed">target NGDP</a>.

There is no need to jump all the way to your crazy idea of beginning to centrally plan the economy. Milton Friedman explained how the Fed <a href="http://www.amazon.com/Monetary-History-United-States-1867-1960/dp/0691003548">caused the Great Depression</a> in the 1930's, and unfortunately they repeated that error in the last few years. Believe it or not, printing more money would solve our current recession, with neither of the problems of either austerity or deficit spending.
Jun 5, 2012
I think people are overthinking this whole economy thing. I think the answer is strikingly simple - the people who *have* money need to *spend* it. That's it.

My paltry understanding of Keynesian economics is that it's better than not to have the government print extra money (i.e., borrow) and deficit spend to bolster a recession and (hopefully) prevent a depression or default. But who says that booster shot has to come from Uncle Sam?

If people who have the ability to spend, and I mean just normal people who are still employed and not in real debt and not just the now-famous 1%, but especially those onesies, just buy normal things that normal people like you and I make like furniture and appliances and widgets, then people who make furniture and appliances and widgets can keep their jobs and spend *their* income on auto parts and televisions and so on.

It's really that simple.

About the only thing W ever said that I liked was when everybody was afraid to go to a large public place because of 9/11, he told us to go out and shop. That was actually about half-right like everything else he tried to say - he should have added, "assuming you can afford it."

I would include people like Warren Buffet - hey, it's great that you drive and old Ford pickup to the ranch-style house you bought in the 50's or whatever, but if people with it spend it, we all get to ride.

(I like Scott's idea about rentals a bit, but I think what we need is a great solution that leaves the feckless underwater in their homes, maybe a new (god-help-us) government agency that takes on the burden of converting underwater mortgages into a rental agreement that the current residents can afford and (god knows why) relieves the bank with the bad paper of any obligation to "property manage.")

OK, I'm done.
Jun 5, 2012
Nice one Scott. In fact, I have a couple of data points for you to illustrate how far we still are from seeing your idea come to fruition.

You may be familiar with vacation rentals site alrbnb. They do nothing more than allow locals to rent out spare space to tourists. The SF Treasurer wants to impose a hotel tax on them, while over in NYC, lawmakers want to shut them down. I think these couple of data points illustrate the unwillingness of the authorities to entertain creative ideas.

I would consider a tipping point to be approaching when we have say 50 instances of news similar to the above, while having 2 or 3 outstanding successes reported.
That's probably when you can really say that a nationwide sea change is about to take place.

[Disclosure: I work for European alrbnb competitor 9flats]
Jun 5, 2012
You know... Realistically. If the mortgage lenders would just cut the bull !$%*! and actually take some responsibility in their irresponsible sub prime lending practices the past 15 years, i'm sure things would improve dramatically.

Right now, both the sub prime borrowers and lenders are blaming each other for all of the mortgage defaults.

And the blame game is only !$%*!$%* things up for everyone... Even the intelligent, responsible borrowers and lenders.

It takes two people to make a baby.

Just like It also takes two people to make a loan.

And if any of the two. Baby makers or loan makers are either irresponsible, uneducated, And or just plain stupid.... there is going to be a high likelihood of delinquency as a byproduct. The same logic applies.

And yes , many sub prime borrowers where in the wrong. Specially in regards to financial ignorance, miss stating income, not paying their loans on time, and or not at all.

But many of the sub prime lenders where in the wrong as well. If not even more wrong, considering their status in the lending game.

The lenders where thinking in terms of short term profits when they haphazardly gave adjustable high interest loans to so many financially ignorant people. They took advantage of financially stupid people for the short term gain, and disregarded the huge consequences of giving loans to financially stupid people.

For a while the lenders made huge profits from taking advantage of the financially stupid. Charging late fees, ballooning interest rates and the such made a killing.

But now.... In the long term. Obviously Not so great of a deal.

Maybe if the lenders where responsible and did their freeking job, and verified incomes, educate and guided the uneducated and misguided to a affordable proper path to borrowing. We wouldn't be in this mess to begin with. And profit would still be made.

Theres a reason why taking advantage of ignorant people for gain is wrong.... And now everyone is paying the price for it....
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