The economist on how best to stimulate the sluggish economy.

Question: How would public healthcare boost the economy?

Dean Baker: Well, the reason I say national healthcare is that, for stimulus, you want to be able to look somewhere you could spend a lot of money quickly. And healthcare has the advantage that it’s a huge, huge sector. It’s a $2.4 trillion industry which is about 17% of the economy, so you could reasonably look to expand that and you could look to expand it relatively quickly. The way I proposed doing that was an employer tax credit where we have around 30, 40 million workers that don’t get employer-provided health insurance. So if we give employers a tax credit of, let’s say, $3,000 a worker to give those workers healthcare coverage then my guess is that an awful a lot of them would do that. What that would do fairly quickly do is, on one hand, it would employ people in the insurance industry which is not something I’m anxious to do but a stop gap is a good thing to do. It would give people healthcare, employing people in the healthcare sector and to some extent, of course, these people, if they don’t have insurance, they’re paying it out of pocket. So what that would mean is they will pay much less out of pocket, they’ll have more money to spend and these tend to be more modern income people so they are likely to spend it. So I thought that could give a good boost to the economy. Now, to actually transform healthcare, we have to go further. I want to see a public plan that people could buy into but the idea would be, let’s take advantage of the fact that we actually just need to create demand. So in a certain sense, we don’t mind the waste. Waste right now is fine. But what we could do is, one, give people coverage at the word go and then, say, 2011, 2012, presumably we’d have a national healthcare plan ramped up that people could buy into if they chose. And then, we’d have a mechanism in place that could start to control cost. So I think that would be a very good way to look to do something. It would be a short-term boost to the economy and really jumpstart us towards national healthcare insurance, which has to be top priority in anyone’s, to my mind, on anyone’s agenda right now.

Question: How else can we stimulate the economy?

Dean Baker: The other good way to do stimulus, big stimulus I should say, is what I’ve called a pay-or-play tax credit, pay-for-play I should say, which would give employers a tax credit for providing workers with paid time off. So the way it would work is we pick a sum of money, let’s say $2,500 per worker, and we tell employers that we’ll pay them to offset any amount of paid time off that they give their workers up to $2,500 a year. And the paid time off could take the form of paid sick days, paid parental leave, paid vacations or shortening the standard work week. And what that would do is, on the one hand, it would directly get money into workers’ pockets but more importantly we’re giving a benefit that people are likely to value. We’re way behind the rest of the world in this front. Everywhere else, if you look to Germany, Britain or any country you pick, they all have paid sick leaves, paid vacation and paid parental leave. We’re really the outlier in that way so it jumpstart us that way. But in terms of the economy and stimulus, let’s say we got employers and 100 million workers to take advantage of this and they shorten the work time of the workers an average of 5%. We’re seeing just as much demand as they did previously because the workers have just as much money in their pocket as they did previously but they get 5% fewer hours. In principle, what they’re going to want to do is hire 5% more workers. That translates into 5 million jobs. So the nice part of the story is that instead of 5 million people being unemployed, we have a 105 million people now employed and they’re all working much shorter hours and taking, instead of unemployment, leisure time, paid vacations, paid parental leave or whatever it might be. So I think that’s a very good way to deal with this basic problem. We don’t have enough demand in the economy at the moment. One, we do want to increase demand but, two, why not just let everyone work shorter hours?

Recorded on: April 28 2009