The Ideal Stimulus Package

Update | 11:56 a.m., December 16: Updated to include new plans from Claudia Goldin, Ann Dryden Witte, Edward L. Glaeser, Nancy Folbre, Laura Tyson, Lori Kletzer and Len Burman, and an update to the plan from Raj Chetty.

President-elect Barack Obama and members of Congress are considering a fiscal stimulus package that’s reportedly in the ballpark of $500 billion. How should that money be spent?

We asked a group of economists how they would use the money if they had their druthers. For simplicity’s sake, we gave them the condition that they had to use every penny of the $500 billion on government spending or tax cuts or both. A collection of their responses is below. If you think you have a better plan, leave it in the comments or send it to economix@nytimes.com.

In the meantime, click on any of the following names to jump to that economist’s plan:

Joseph Stiglitz, Columbia Business School
Tyler Cowen, George Mason University
Casey Mulligan, University of Chicago
Andrew Samwick, Dartmouth
Dean Baker, Center for Economic Policy Research
Raj Chetty, University of California, Berkeley
Mark Zandi, Moody’s Economy.com
Nathaniel Keohane, Environmental Defense Fund
Claudia Goldin, Harvard University
Andrew Roth, Club for Growth
Ann Dryden Witte, Wellesley
Edward L. Glaeser, Harvard
Nancy Folbre, University of Massachusetts-Amherst
Laura Tyson, University of California, Berkeley, Haas School of Business
Lori Kletzer, University of California, Santa Cruz
Len Burman, Tax Policy Center
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Joseph Stiglitz, professor at Columbia Business School and Nobel laureate: “Right now there’s going to be a major shortfall in revenues for states on the order of a magnitude of $100 or $150 billion per year. This means they may cut back on expenditures, which would be like a negative multiplier and lead to a contraction in the economy. The first priority is making sure to fill in the hole, that shortfall in state and local money …

“The second thing I would do is that we need stronger unemployment insurance. Unemployment is growing more long-term again, and we don’t know the magnitude of that. I’d put that at the top of the priorities, including help for those who would otherwise lose their home because they’re unemployed, and health insurance for the unemployed. That’s my second priority.

“The third, I think, obviously is spending money to try to prevent foreclosures, whether that’s part of TARP, or a successor to TARP. That would be foreclosures among lower-middle-income people … which would help stem the financial crisis.

“Then fourth is the remaining part needs to be divided among several categories. One of the critical issues here is how quickly you can gear up various kinds of spending categories. There are two important criteria: The first is the bang for the buck, how much stimulus we get for every dollar we spend. The second is consistency with our long-run vision. That means supporting R.&D., including green R.&D. as well as basic research. That also means infrastructure, and restructuring the economy for higher energy prices. That also means schools. There are a lot of decrepit schools. That means a broad infrastructure deficit.

“I would actually scale back military expenditures which do not stimulate the economy as much as some of these other kinds of expenditures. Given the high deficit, we have to be careful how we spend money, given our various financial problems. We should restructure our health care system, our energy system, and our military system.”

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Tyler Cowen, professor at George Mason University: “I would modernize the few critical bottleneck airports in the U.S., most of all La Guardia and Kennedy. That would not cost a fortune.

“I would try to ensure that state and local governments do not cut funding which they will later restore. To me that is more important, and more conducive to macroeconomic stability, than embarking on new and potentially dubious programs. That will cost most of the money. It’s not that I think state and local governments are always so efficient and wise, but rather this is a very simple and direct way to prevent the economy from being hit by yet another sectoral shock when it is already reeling.

“There are many good ideas, such as electronic medical records, that will not benefit the economy as macroeconomic stimulus. And so they do not make the list as you have phrased the question.

“If there is money left over I would spend it on cutting the Social Security payroll tax for specified groups of lower- to middle-income workers, thus encouraging the resumption of hiring.”

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Casey Mulligan, professor at the University of Chicago: “I would spend $300 billion on immediate across-the-board tax cuts. Let’s say add a line to the end of the tax return that says ‘take X percent off your tax liability.’ This is like the special war surcharge we had during WWII except that it is a reduction rather than a surcharge. X would be determined by whatever percentage costs $300 billion. This would be available as soon as a person files his 2008 tax return (would be late January for some people).

“I would spend $200 billion on important and needed infrastructure upgrades. Homeland security investment. Renovation of the more aged (but still used) roads and airports.”

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Andrew Samwick, professor and director of the Nelson A. Rockefeller Center at Dartmouth College: “If I had my druthers, the word ‘stimulus’ would be expunged from public discussion, along with ‘bailout’ and ‘rescue.’ These words convey the idea that, because we have so mismanaged our economic and financial affairs, we are somehow able or entitled to conjure up additional funds out of thin air to fix our problems. There are two problems with this idea.

“First, the purpose of government spending is to purchase goods and services that the government needs to meet its responsibilities, not to hand out resources to those who panhandle most loudly for them. The reason to spend more in a recession is not to employ idle resources — it is to be able to stretch the taxpayers’ money further by getting a better price for its purchases because workers without jobs will work for less and owners of empty factories will charge less. Second, there is no free lunch: the money we spend today is a loss to the Treasury, whether as ‘timely, temporary, and targeted’ tax cuts that have no discernible impact; payments to delay bankruptcy for large, mismanaged entities, whether A.I.G. or the Big Three; or the largest public works program since the Interstate highway system. That loss to the Treasury must be made up at some future date, by later cohorts of taxpayers.

“Fortunately, both of these problems can be overcome by focusing all new spending on investment rather than consumption and on public investment rather than private investment. By their nature, capital investments last for years or decades, so that there is a better chance that those who are paying for the spending are reaping its benefits. Public investment also meets the criterion that the spending goes for projects that are within the government’s responsibilities. Repairing roads today removes the need to repair them for a number of years. In 2005, the American Society of Civil Engineers released a report card in which it estimated that $1.6 trillion would be required over a five-year period to restore the nation’s physical infrastructure to good condition. If I had a target of $500 billion to spend, every dime would go for public infrastructure investments, and we’d still have quite a bit of work left to do.”

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Dean Baker, co-director of the Center for Economic and Policy Research: “For the stimulus to be well spent, we want it to go to areas where it could be spent quickly and ideally have lasting benefits for the economy. The $500 billion figure is probably too low, given the sharp falloff in the economy, but it is an important start.

“Between $80 billion and $100 billion can be used on traditional infrastructure projects like repairing roads and bridges. A comparable amount ($80 billion to $100 billion) can be used over the next two years for green projects, like retrofitting buildings to make them more energy efficient.

“State and local government could use around $100 billion to offset revenue shortfalls. Some of this money can be tied to measures that promote family-friendly workplaces (e.g. paid time off), like tax credits to small businesses that provide paid sick days.

“The other $200 billion to $240 billion should be used to extend health care coverage. Coverage can initially be extended through a system of generous tax credits for employers who extend coverage to previously uncovered workers. Employers who already provide coverage can be given incentives to make their coverage more generous.

“To get to a longer term plan, President-elect Obama should open up the Medicare system to all workers and employers. This will get him on track to implement his health reform plan.”

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Raj Chetty, professor at the University of California, Berkeley: “Conditional on having a fiscal stimulus of this size, I think that three objectives should be kept in mind: a) targeting money given to individuals to those who will spend it immediately (primarily low-income, low-wealth households); b) when giving money to stimulate business activity, limiting government involvement and using market forces to the extent possible to distribute the money; and c) implementing a set of programs that, if retained after the stimulus is necessary, are desirable from a long-run perspective (e.g. a move toward fundamental reform in areas like health care).

“With these three objectives in mind, I’d propose a three-part plan along the following lines (this is a rough description — obviously one would want to work out the details carefully):

“1. $150 billion to expand social insurance programs: this is critical for a demand-side stimulus because individuals eligible for these programs have a high marginal propensity to spend. In particular:

— Increase federal unemployment insurance benefits

— Provide some type of health insurance for the unemployed, helping ease transitions. This could pave the way to a universal health insurance program later.

— Expand food stamps and earned income tax credit and simplify take-up to get more people claiming these benefits (right now only half of food stamp eligible individuals actually get their food stamps).

— Expand loan programs for education (e.g. Pell Grants) while making the system more transparent and simplifying the application process, which seems to limit take-up.

“2. $200 billion on public infrastructure, e.g. highways, rebuilding schools, improving the energy grid, and the like. This ‘supply side’ stimulus will give more people jobs and thereby increase spending.

“Much of this should be subsidies to private companies — better to change prices rather than directly get the government involved, which could lead to considerable inefficiency via suboptimal allocation of funds. Some of this could take the form of a well-targeted investment tax credit rather than direct ‘public works’ — e.g. offer companies subsidies to rebuild highways or schools.

“3. The remaining $150 billion could be used for a ‘middle class’ tax cut, for incomes between say $30,000 and $100,000. This can be sent out in the form of large rebates rather than reductions in tax rates, in order to increase the probability that they get spent.”

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Mark Zandi, chief economist at Moody’s Economy.com: [Click here for a table containing Mr. Zandi’s complete plan.]
“The package includes $300 billion in government spending and $200 billion in tax cuts. Government spending provides the largest economic bang for the buck, particularly infrastructure spending, as it immediately adds to output and jobs here in the U.S. Aid to state governments will also forestall immediate cuts in programs and jobs that states have to undertake to satisfy their balanced budget requirements. Infrastructure spending will take time to benefit the economy, and a tax cut is necessary to provide some quick support to the economy. A payroll tax holiday and a permanent payroll tax credit would be effective tax cuts, particularly if designed to help harder-pressed lower- and middle-income households and smaller businesses. If I had my druthers, however, the recovery package would be measurably larger than $500 billion. It is important for policy makers to send a strong and clear signal that they will do whatever is necessary to revive the economy. Only a concerted, comprehensive and consistent policy response stands between a severe recession and another depression.”

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Nathaniel O. Keohane, director of economic analysis and policy at the Environmental Defense Fund, an environmental advocacy group: “How to spend $500 billion?

“There are lots of ways to spend half a trillion dollars as an economic stimulus, but a few principles can come in handy: pump the money into the economy quickly, which means projects that can be financed within the next 6 to 18 months; spend the money on goods and services produced with American jobs; channel the money to states and localities that can spend it wisely, and hold them accountable.

“But there is also a fourth — equally important — principle: avoid a high-carbon hangover. While the economic crisis demands urgent and immediate attention, we also face a long-run crisis: global climate change caused by the emission of carbon dioxide from fossil fuels (and other greenhouse gases), which threatens catastrophic consequences for our children and grandchildren. Whatever is spent on stimulus must be aligned with this long-term priority. We need to ensure we don’t spend hundreds of billions of dollars and still end up with a transportation and electric power infrastructure built for the 20th century, instead of the 21st century. Funding proposals should be subject to a ‘carbon screen’ to make sure that they move our economy toward a low-carbon future rather than locking in global warming. For example, rather than rushing to build new roads that encourage suburban sprawl, let’s fix our existing roads (and bridges) first. Rather than building wider highways, let’s build rapid transit corridors and car-pool lanes — or better yet, sidewalks and bike lanes. Rather than building coal-fired power plants, let’s build the transmission infrastructure needed to expand wind and solar generation.

“Even with these principles as a guide, it turns out to be surprisingly hard to spend half a trillion dollars. So I’m going to be modest, and only lay claim to $100 billion over two years. That amount of money could fund a green stimulus package that would create and support good jobs while modernizing our transportation infrastructure, making homes and businesses more energy efficient (leading to lower utility bills for years to come), laying the groundwork for a ‘smart’ electricity grid, and restoring key ecosystems.

“For starters, the Environmental Defense Fund has identified a number of energy efficiency measures that could be funded right away — like $1 billion to help homeowners install energy efficient windows, $750 million to install devices that will cut fuel consumption by long-haul trucks, and $600 million to help households buy smart boiler controls. These products are made in the United States — meaning more jobs for American workers — and would save homeowners and small businesses money in the years to come.

“Other good ideas (from other environmental groups and from think tanks like the Center for American Progress and the Center for Budget and Policy Priorities) include:

•$8 billion to modernize public transit;

•$2 billion to improve intercity rail;

•$5 billion to “green” affordable housing;

•$3 billion to finance a Clean Energy Corps;

•$4 billion to restore ecosystems including the Florida Everglades and coastal Louisiana;

•$10 billion to start building a “smart grid” — the foundation for an electricity infrastructure that rewards conservation and supports renewable energy generation.

“All told, there is $100 billion worth of such projects ready to go; most of the federal spending is already authorized by legislation, and needs only to be appropriated. While we stimulate the economy, let’s lay the foundation for a low-carbon future.”

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Claudia Goldin, professor at Harvard University: “$500 billion to spend. Wow. I have an objective function and can’t just give my half-trillion to my favorite causes (all of which involve animals and other vulnerable beings, like children and the homeless).

“My objective is to stimulate the economy at the same time that those who are most greatly harmed by the downturn (e.g., the unemployed) are helped.

“The idea is to prevent long-term damage to both human and physical capital, without creating negative incentives.

“Three items come to mind:

“1. Expand and increase unemployment insurance. There is little reason to believe that this will have negative incentive effects in the current environment.

“2. Increase expenditures on education through, for example, more and greater Pell Grants; in particular allow the children of parents whose incomes have taken a wallop to qualify for Pell Grants. I prefer giving funds to the students than to the institutions.

“3. Use some of the funds on worthy public works; no highways to nowhere. How to pick and chose is another matter and how to spread the wealth geographically will be difficult as well. This item could have the most waste and would require some very smart minds doing the allocation.

“No tax cuts. They didn’t work before and won’t work this time.”

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Andrew Roth, director of government affairs at the Club for Growth, an organization that promotes lower taxes and limited government: “The best way to spend $500 billion would be to permanently eliminate the corporate income tax. It’s a smart move, both economically and politically. This country needs to rebuild its capital base. Eliminating the inefficient tax on corporate income would increase profits, which would in turn expand production and increase job opportunities. It would also instantly increase asset valuations like 401(k)’s, I.R.A.’s, and homes, which have been hemorrhaging in value over the last several months. Eliminating the corporate income tax would also reignite competition and spur innovation, allowing people to buy more for less.

“It’s impossible to calculate with any precision the cost of this idea. But most businesses are making relatively less income this year than in years before, so taxpayers could get more bang for the buck with a tax cut. Plus, we could “pay” for part of the tax cut by doing away with subsidies, tax incentives, and other forms of corporate welfare that pervert our tax code and create an uneven playing field where the government chooses winners and losers.

“Politically, both Republicans and Democrats recognize that our country has a punitive corporate income tax rate. We have the second-highest rate behind Japan in the developed economy. President-elect Obama and Democratic leaders in Congress should join Republicans in a bipartisan fashion to cut the corporate income tax rate so that our country can start moving forward again.”

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Ann Dryden Witte, professor at Wellesley College: “At this point, we, as a nation, have already spent a great deal of money in crisis mode. It is time that we step back and ask two questions:

“(1) How did we get into this mess?

and

“(2) How can we emerge from this mess stronger?

“Q1: How did we get into this mess?

“The U.S. Situation

“We got into this mess because of both national & international forces.

“In response to the Internet bust and 9/11, the Federal Reserve radically cut interest rates. This coupled with deregulation and weak regulatory enforcement allowed both U.S. firms and U.S. households to make financial commitments that they could not support over the longer term.

“On the fiscal side, two major decreases in taxes and increases in federal expenditures meant that our federal government, like our firms and households, was taking on increasing amounts of debt.

“The International Situation

“The U.S. consumer became ‘the consumer of last resort.’ The rapid growth of Asian economies was dependent on U.S. consumer demand, which was supported by Asian economies’ willingness to buy U.S. fixed-income assets (including large numbers of Freddie and Fannie bonds that help to inflate the housing bubble).

“Q2. How can we emerge from this mess stronger?

“Excess consumption, by households and the federal government, was a major reason we got into the mess.

“The first stimulus bill sought to have consumers continue their spending binge to help us out of the crisis. It failed because it coincided with commodity price inflation and because it did not attack the causes of the crisis. TARP has also proven to be only a band aid largely because it too did not address the underlying causes of the financial crisis.

“Excessive consumption is generally best addressed by a period of saving and investment. However, the time for additional savings is not now. It will only worsen the crisis.

“Investments under the Stimulus Package

“This leaves investment and a large stimulus plan. Larry Summers has, correctly I believe, indicated that effective stimulus packages must be timely, targeted and temporary (the three T’s) if they are to be effective.

“What stimulus package will meet the three T’s test and be effective? I believe that a plan focused on high-return investments (both human capital investment and physical capital investment) and on dealing effectively & creatively with the housing crisis could be effective.

“The trouble with investments projects is that they often don’t meet the three T’s test and, if they are government-directed, do not produce high returns. Current discussions suggest that one third of the $500 billion going to ‘shovel ready’ infrastructure projects. Democratic Congressional leaders are talking about $165 billion or so infrastructure spending for projects already approved in earlier sessions, with building permits, approved environmental impact statements and other steps in place. Let’s hope that one of the other steps is careful assessment of the return likely on the investments.

“Human capital investments should also not be overlooked, but like physical capital investments should meet both the three T’s and the high rate of return hurdle. Increased student loans can be dispersed relatively quickly and would serve to relieve both strained family budgets and strained college and university financial aid programs. How we ensure high rates of returns on these investments is a more difficult question. The increasing numbers of poorly designed and poorly executed education programs (state, not-for-profit and private) in the U.S. means that at least some of these funds will be wasted on low-quality, low-return education.

“Education targeted to the sciences and technology might yield higher rates of returns than general education subsidies. Such targeting was successful during the Sputnik era of the later 1950s.The proposed extension of unemployment insurance benefits might also be tied to targeted education requirements for those unable to find work within a reasonable period of time.

“There is now a good deal of research that supports the high returns that can flow from high-quality programs for at-risk children early in their lives (preschool ages). Using some of the stimulus package to increase spending in this area could be targeted and timely (many states already have underfunded Pre-K initiatives & long waiting lists for child care subsidies). Making such expenditures temporary may be more difficult, although the rapid rate of growth in this area that came with welfare reform did prove to be temporary.

“The Housing Crisis and the Stimulus Plan

“Some funds from the stimulus plan should be used to deal with the housing crisis. If we can find effective ways of dealing with foreclosures and forced sales, we will have a better chance of stopping or at least slowing the decline in housing prices in most of our metropolitan areas. This is central to alleviating the mortgage crisis that is a central part of the current financial crisis.

“Two approaches that have been discussed but not implemented seem promising and, if correctly designed, would meet the three T’s test. One is Shelia Bair’s, chairwoman of the F.D.I.C., Loss Sharing Proposal to Promote Affordable Loan Modifications. This proposal has already been tried as a part of the restructuring of IndyMac. The other is a set of proposals designed to allow families at risk of foreclosure to stay in their homes as renters. Such programs would need to be far more limited than the 20-year right to rent proposal contained in Saving Family Homes Act of 2008.”

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Edward L. Glaeser, professor at Harvard University: “(1)…I would certainly put money into scholarships, but you can’t spend 500 billion that way. I haven’t even tried to cost it out.

“I would — by the way — accompany these things with a certain amount of living assistance that would be conditional on good performance in the program (getting a degree if appropriate).

“(2) There must be good transportation and infrastructure projects out there — I would do this probably with states proposing things that are then evaluated by an independent committee to look at cost/benefit analysis. Then make the money contingent on getting highly rated by this group. I presume broadband makes sense.

“(3) Aid to states, as a form of revenue-sharing, is O.K. I would also tie this to good performance in other areas…

“(4) Ramp up the Earned Income Tax Credit.

“(5) Temporarily have the federal government pay the Social Security taxes of poorer Americans. The key is to get money in the hands of people who will spend it — both for that reason and conventional equity grounds — it makes sense to target money towards the poor. They aren’t paying regular taxes (mostly) — the only taxes that can be cut for this group are the S.S.D.I.-type payments — so let’s cut these. Obviously, it needs to be done in such a way that minimizes any distortions not to work.”

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Nancy Folbre, professor at University of Massachusetts-Amherst: “I favor a pink and green stimulus. Investments in both human capital (education and health) and green energy (conservation and renewables) should be our top priorities, because they can generate long-run returns as well as short-term benefits, including job creation.

“I would also rank repair of our existing infrastructure (roads, bridges, bandwidth) highly. Some of these investments could take the form of transfers to states to help them finance and expand existing programs; some will require new initiatives.

“Well-coordinated public investment should be able to generate new jobs; in the meantime we need to expand our existing social safety net, including unemployment insurance. We should also recognize and reward family work. Paid leaves (already adopted by several states) could help families balance the competing demands of paid employment and family work in ways that promote gender equity. Proposed tax cuts could be realigned to benefit families with young children through an expanded and fully refundable child tax credit.

“Low-wage workers — especially women — have benefited little from the economic growth of the last twenty years, and are especially vulnerable to job loss. A number of feminist scholars are emphasizing that public investment focused primarily on construction would (like its earlier New Deal precedents) create far more jobs for men than for women. (In addition to pieces by Randy Albelda in the Boston Globe and Linda Hirshman in The New York Times, see short pieces posted on Take Care Net). Hence the need for pink as well as green investments — or more broadly, a rainbow stimulus that delivers benefits across the economic spectrum.

“Here are two examples of the kinds of programs that should be included in the mix: We could provide public support for universal high-quality early childhood education for three- and four-year-olds, coordinated with improvements in the first three years of elementary school. A recent report to the Foundation for Child Development estimates the price tag for making existing programs universally available at about $79 billion per year. Second, we could provide more generous support for the home care workers who make it possible for many sick, disabled and elderly individuals to avert more costly hospitalization or nursing home care. Public investments of $56 billion per year would roughly double our capacity in this area, financing higher wages and benefits, reducing turnover, and expanding availability.”

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Laura Tyson, professor at the University of California, Berkeley, Haas School of Business and chair of the National Economic Council and President’s Council of Economic Advisers under Bill Clinton: “The U.S. economy is caught in three related crises that are reinforcing one another in a downward spiral: a crisis in the housing and mortgage market; a credit crisis; and a crisis of collapsing private demand. These three crises are not self-correcting. They are self-reinforcing. They can be mitigated and reversed only with bold government policies that include: a fiscal economic stimulus package of government spending and tax cuts to fill the gap caused by the shortfall in private demand; policies to stem the mortgage and foreclosure crisis; and policies to stem the credit crisis by recapitalizing the banks and acquiring assets not currently trading among private actors.

“There are three broad goals of fiscal stimulus measures: to reduce the depth and severity of the recession caused by the sharp fall in private demand; to help those most hurt by the recession; and to encourage economic activity that provides a basis for sustainable growth and prosperity in the future.

“Four principles should guide the choice of stimulus measures:

“They should be timely in the sense that they increase demand as quickly as possible: examples include federal grants and loans to state and local governments and temporary tax relief.

“They should have a significant impact on spending and employment: examples include extended jobless benefits and infrastructure spending on already approved projects.

“They should provide relief for those who are most adversely affected by the recession: examples include extended jobless benefits and food stamps and support for state Medicaid programs.

“They should focus on growth-enhancing investments in education, infrastructure and alternative/green energy development: examples include: increased support for work-study programs and Pell grants; infrastructure spending on mass transit programs; and enhanced tax credits for the production and utilization of alternative energy.

“The size of the stimulus package depends on how deep and long the recession turns out to be. A 4 percent reduction in G.D.P. indicates a stimulus package of about $600 billion spread out over two years, with the lion’s share spent in the first two quarters of 2009. Based on current economic forecasts, I think a stimulus package of at least this magnitude is warranted. Given the sharp drop in economic activity, I think the dangers of doing too little outweigh the dangers of doing too much.

“For a $500 billion stimulus package, I would include the following policies:

*$40 billion for additional UI and food stamp benefits
*$175 billion of infrastructure spending, including about $90 billion for alternative energy and green initiatives
*$120 billion for grants and loans to state and local governments
*$165 for household and business tax relief (including a temporary payroll tax holiday)

“I would also support additional government spending of $40-$50 billion for a foreclosure relief/loan modification program. According to scholars at the Center for American Progress, this amount could prevent more than 3 million foreclosures on $640 billion of mortgages and help ease overall credit market conditions. This amount of foreclosure relief could be financed out of the TARP program or included in a larger stimulus package.

“Finally, I would also support a bridge loan for the auto companies in the range of $15-$20 billion. This could also be financed out of the TARP program or included in a larger stimulus package.”

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Lori Kletzer, professor at University of California, Santa Cruz: “A $500 billion stimulus package should target direct employment effects, and the associated impact on individual and family incomes and spending. I would focus on three key areas:

“1. Send money to the states to stop the ongoing fiscal contraction. The crisis in state (and local) budgets is producing layoffs. If G.M. is “too big to fail,” in terms of employment, then the same is true for job losses in the public sector. Governors are likely to have a lengthy list of small (as compared to the feds) projects that can be implemented quickly. There is much focus now on infrastructure (roads, bridges); I would add the education infrastructure to that list. Money spent on education can first be used to stop the ongoing cuts and preserve jobs. Building (and re-building) the education infrastructure creates employment now and creates capacity for the future. K-12 education comes first to mind, but the higher education infrastructure is important too.

“2. Expand and increase unemployment insurance. First, make sure states running deficits in their trust funds have access to loans. Then fund expansions and extensions such as making sure workers who move across state lines retain eligibility, fund extended (beyond 26 weeks) benefits, and move to a better process for ensuring timely benefit extensions. Using the model within Trade Adjustment Assistance, provide funding to maintain health insurance coverage for unemployed workers (that method involves advanceable tax credits). Allow workers to search for part-time employment, not just full-time employment. Finally, establish a program of wage-loss insurance, so that workers who become re-employed at a wage lower than what they earned on the lost job can have some of the earnings loss covered. This is likely to encourage workers to look more broadly for the next job, where they could gain access to on-the-job training.

“3. Spend to maintain higher education access. Expand Pell grants, especially as student financial need increases due to the fall in family incomes.”

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Len Burman, director of the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution that focuses on tax policy and federal budget issues: “Here are three ideas. First, aid to state and local governments to offset the direct effect of the downturn. They must balance their budgets, but the economic slump and plummeting housing values have slashed tax revenues and increased demand for public assistance. Without federal help, state and local governments will have to raise taxes, cut spending, or both—all of which would exacerbate the economic downturn. The transfers should be allocated based on the economic conditions in each state; those hardest hit by the recession should get the most aid. The aid should not be based solely on the size of deficits in each state because that would reward states with reckless fiscal policies over those that have been more prudent.

“Second, investment in infrastructure is a good idea, but the money should be targeted at projects that are ready to go but for a lack of financing. Boring projects like repaving existing roads and bridges are likely to create jobs much faster than big new infrastructure projects that might take years of design and regulatory review before breaking ground. And catching up on the maintenance backlog for roads, bridges, and dams would be a good idea, even if it didn’t do much to boost the economy in the short run.

“Finally, there will almost surely be some sort of consumer rebate. The last two times, this was done through cash payments from the I.R.S. and the results were somewhat disappointing. A significant fraction (40-50 percent) of the money went into savings or reducing debt rather than additional spending. While saving is a virtue, it does not boost the economy in the short run.

“An alternative that might produce a bigger boost would be to send everyone with a Social Security number a prepaid card, like the ones offered by major credit-card companies. The money could be spent at any retailer that accepted the company’s credit cards. In principle, the card would be the same as cash, and might still allow consumers to save more. In practice, we know from behavioral economics that labeling matters. If people get a card that they can only use if they spend the money, their spending is likely to increase more than if they can bank a rebate check. And the experiment would produce fascinating data for economists to study.

“There would be some administrative issues. To deter theft or fraud, card recipients should be instructed to activate their cards by telephoning an automated number and saying their Social Security number (which would not be on the card). Some people would not get cards because their addresses changed. Presumably they could apply for one on their income tax return or by filling out a form if they are not required to file. And card issuers should be required to compete to offer the new cards to minimize the cost to the government.

“If nothing else, the proposal would create jobs in the credit card industry.”