Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
2Activity
0 of .
Results for:
No results containing your search query
P. 1
The Housing Crash Recession and the Case for a Third Stimulus

The Housing Crash Recession and the Case for a Third Stimulus

Ratings:

4.2

(5)
|Views: 147 |Likes:
This paper makes the case for a third stimulus package to in the face of economic indicators signaling that the economy is in a deeper downturn than was expected based on previous projections. Specifically, the report calls for an employer tax-credit for extending health care coverage and another per worker employer tax credit for increasing paid time off from work. The author also makes the case for a housing policy centered on the stabilization of prices in non-bubble and deflated markets rather than applying the same efforts on markets that remain at bubble inflated levels. Finally, the paper argues that the dollar must be allowed to fall in order to adjust trade imbalances that are compounding the U.S. economic crisis caused by the collapse of the housing market.
This paper makes the case for a third stimulus package to in the face of economic indicators signaling that the economy is in a deeper downturn than was expected based on previous projections. Specifically, the report calls for an employer tax-credit for extending health care coverage and another per worker employer tax credit for increasing paid time off from work. The author also makes the case for a housing policy centered on the stabilization of prices in non-bubble and deflated markets rather than applying the same efforts on markets that remain at bubble inflated levels. Finally, the paper argues that the dollar must be allowed to fall in order to adjust trade imbalances that are compounding the U.S. economic crisis caused by the collapse of the housing market.

More info:

Published by: Center for Economic and Policy Research on Mar 17, 2009
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

10/16/2012

pdf

text

original

 
 
The Housing Crash Recession andthe Case for a Third Stimulus 
Dean Baker
March 2009
Center for Economic and Policy Research
1611 Connecticut Avenue, NW, Suite 400Washington, D.C. 20009202-293-5380www.cepr.net
 
The Housing Crash Recession and the Case for a Third Stimulus
1
Contents
Executive Summary...........................................................................................................................................2
 
 The Downturn Will Be Worse Than Expected.............................................................................................4
 
 The Federal Government and the Need for Additional Stimulus............................................................12
 
Stabilizing the Housing Market......................................................................................................................15
 
 The Falling Dollar, the Key to Long-Term Recovery................................................................................17
 
Conclusion........................................................................................................................................................19
 
 Appendix...........................................................................................................................................................20
 
 About the Author
Dean Baker is an economist and co-director of the Center for Economic and Policy Research, in Washington, D.C.
 Acknowledgments
Eileen Appelbaum, Alan Barber, Shawn Fremstad, John Schmitt, Kris Warner, and Nicole Woogave helpful comments on this report.
 
The Housing Crash Recession and the Case for a Third Stimulus
2
Executive Summary
 The overwhelming majority of economists, including all those in top policymaking positions,completely missed the growth of an $8 trillion housing bubble. Furthermore, even as the collapse of the bubble began to push the economy into recession, policymakers repeatedly downplayed itssignificance, minimizing any negative effects on the economy. As a result, the policy responses lastyear were too late and far too small to have much effect countering the downturn. This paper argues that policymakers are still underestimating the severity of the downturn.Specifically, it argues that the unemployment rate by the end of 2009 is likely to be far higher thanthe most recent projections from the Congressional Budget Office and the Federal Reserve Board.In this context, it argues for additional stimulus
1
in the neighborhood of 2-3 percent of GDP fortwo years ($300 billion to $450 billion annually). It suggests two specific mechanisms for getting thismoney into the economy quickly:1) an employer tax credit of $3,000 for extending health insurance coverage to workers notalready covered by health insurance. The tax credit can include an additional $1,000 per worker to make coverage more generous.
2)
an employer tax credit of up to $2,500 per worker for increasing the amount of paid time off per worker. This paid time off can take the form of paid family leave, paid sick days,increased vacation, or shorter standard workweeks. This would both boost demand and leadto more employment at every level of GDP. For example, if the average number of hoursper worker per year were reduced by just 3 percent, this would lead to 4.2 million more jobsat the same level of GDP.
 
 The paper also argues for a housing policy that is focused on stabilizing housing prices, but only inmarkets where the bubble has deflated. To advance this goal, it should have Fannie Mae and FreddieMac stop buying mortgages that were used to purchase homes at bubble inflated prices. (This can bedetermined by the ratio of the sale price-to-annual rent. As a national average, this ratio should notexceed 15 to 1, although there is some regional variation.)Because they continue to buy mortgages on homes purchased at bubble-inflated prices, Fannie Maeand Freddie Mac are generating new losses for taxpayers, while providing no real benefit forhomeowners. Homeowners in these markets will pay more in housing costs by owning rather thanrenting and still find themselves with no equity when they sell their home. By contrast, if relief wasfocused on markets where the bubble has deflated, prices could be stabilized and it is likely thattaxpayers would actually profit in the long-run. The last section points out that the frequently-discussed notion that investors will flee the dollar isactually not to be feared at all. It is in fact necessary, since the dollar must fall to correct thecountry’s huge trade imbalance. The rest of the world has more to fear from a free-falling dollar
1
The first stimulus was passed by Congress and signed by President Bush in February of 2008 and consisted almostentirely of tax cuts and individual rebates. The second stimulus was passed by Congress and signed by PresidentObama in February of 2009 and included a variety of efforts to counter the economic downturn the U.S. is now in.

Activity (2)

You've already reviewed this. Edit your review.
1 thousand reads
1 hundred reads

You're Reading a Free Preview

Download
scribd