The Main Street Economic Recovery Proposal: Will it Bring Us out of Recession?

Abstract

This is a policy paper on the stimulus plan as of December 2008. Fear of a deep recession has led policy makers to propose an unprecedented stimulus package to save the economy, a sort of Main Street economic recovery package that would rely heavily on government-sponsored infrastructure projects to create jobs and stimulate economic activity. The problem is real. The unemployment rate is 6.7 percent and rising: 10.3 million American workers are unemployed, and 2.7 million jobs were lost in the last year alone. If history is any guide, however, the bailout the government proposes won't work. Instead, policy makers should focus on the fundamentals of economic behavior and the incentives faced by individuals, governments, and entrepreneurs. Reducing taxes, insisting on fiscal prudence on the federal level, and encouraging it on the state and local level by cutting, rather than increasing, public spending would do far more to help the economy than any of the proposals currently being discussed in Washington.