16 July 2008

How to save the economy

From the New York Times:

"On Tuesday, Nancy Pelosi of California, the speaker of the House, and other House Democrats met with economists to draft another stimulus package, saying it was likely to include spending for roads, bridges, schools and other public facilities, as well as aid for states confronting smaller tax revenues in the face of the housing downturn."

"The White House and Congressional Republicans maintain that the best way to reinvigorate the economy is to adopt legislation to limit home foreclosures and expand domestic production of oil."

More spending seems to be the wrong solution to me. Continued dollar depreciation isn't going to slow inflation. I'm not quite sure what "expand domestic production of oil" means. I will assume the repeal of off-shore drilling bans, as curtailing additions to the strategic reserves seems to be neither a viable long-term solution nor a solution that has significant impact on oil prices given that only about 3 million barrels per month could be diverted to the market (in a very good month) [DOE SPR Data]. The United States consumes over 20 million barrels per day. Limiting home foreclosures might slow declining home prices, but they will still fall nonetheless and continue to cause problems for the financial markets. We're just going to have to ride this thing out.

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