Obama Needs to Go Back to Harvard and Take Professors Barro's Economics Class

All this talk of Keynesian multipliers the Obama Team has been throwing around has got some economists refuting his line of thinking. I was never sure how spending $800 billion was going to create 4 million jobs so I did a little research. It seems that Prof. Barro would rather take these actions instead:

Much more focus should be on incentives for people and businesses to invest, produce and work. On the tax side, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates -- especially where these rates are already high and fall on capital income. Eliminating the federal corporate income tax would be brilliant. On the spending side, the main point is that we should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis. Just as in the 1980s, when extreme supply-side views on tax cuts were unjustified, it is wrong now to think that added government spending is free.

In other words Prof. Barro is saying that a one-time $500 tax credit isn't such a good idea. Instead marginal taxes should be reduced for the middle class so they can use that money to buy things or invest. So instead of taking $2 of every $10 a person makes the IRS takes only $1 leaving you with an extra dollar to spend or invest that you didn't have before. I can see Americans appreciating a few hundred in each paycheck for years instead of seeing $500 in one chunk.

Also getting rid of corporate income tax would save some companies billions of dollars that they could use to retain workers or expand their businesses. Maybe the stimulus could enact a plan that a company does not have to pay corporate income tax if they agree to keep a certain amount of workers employed. Call it a Layoff Cap on employee firings. Or they can use that money to pay down debt or to ramp up R&D or something. As long as they don't hoard the money in their cash accounts it will stimulate growth.

I also agree that any new public works projects need to be looked at under a microscope in order to catch bridges to nowhere lurking out there. That money needs to be used only when it can have some kind of tangible benefit from the project. So a bridge about to fall down or a collapsing sewer system needs to be given the money instead of some park, fountain, or a bridge to 800 people on some island.

That bad highway building is what sunk the Japanese stimulus efforts in the 90s. They spent billions on projects that the Japan Highway Public Corporation wanted and not on things that people actually needed. So they ended up with massive highways that no one uses both due to super high toll prices and from competition from one of the best rapid transit systems in the world. If they used that money to cut their corporate taxes then who knows what good would have come from it?