Laurence R. Rosen: A Solution to the Economic Dilemma

Most would agree that “economic growth” is essential to our recovery.  And implicit is the notion that without growth we will not significantly create jobs and reduce unemployment.

First let’s look at the most commonly proposed answer to our twin deficits. 

1. Cut taxes.  Let’s get serious.  Cutting taxes on the income of the rich just isn’t going to happen and even if it did opinion is divided is to whether it is effective at stimulating growth.  (Pretend you’re a multi-millionaire and you receive an increase in income from reduced taxes.  Would you buy more stock on the market or make a job producing investment?)  And if we cut taxes on the lower income brackets, conventional wisdom says the propensity to spend the resulting income is much higher than for the wealthy.  Such spending however may be most likely to wind up being spent at Walmart, Sam’s, Kohl’s, Costco, and Macy’s.  End result?  Buying more goods manufactured in China, India or Mexico  with a commensurate increase in the deficit in our balance of payments. Tax cutting will only be productive if it results in channeling the increased taxpayer disposable income into channels that create jobs and stimulate growth!

2. Historically, the saying was: “what’s good for General Motors is good for the country” or as “home building goes, so goes the nation”.  The reason behind such platitudes was valid. For each dollar spent in both industries, there is a great multiplier effect from increased employment not only of the basic industries but from the myriad of suppliers. However, today, the TARP (troubled asset relief program) program has already done it’s thing for the auto industry. And, stimulating homebuilding today is impossible as long as the overhang exists of the huge inventory of unsold houses including those in foreclosure.

Thus what we need is a new approach and here it is:

I.                   Put the construction industry back to work by a nationwide new construction program to house the homeless. 

II.                Tens of thousands of bricklayers, electricians, contractors, welders, framers go back to work.  And as a direct result, so to will growth be restored to appliance manufacturers, wall paper manufacturers, and such manufacturers of related ingredients as wiring, faucets, fireplaces, paint, fertilizer, nurseries ad infinitum.   Unemployment roles will be reduced, tax revenues increased and growth restored.

III.             But from whence commeth the money to fund this enormous program of land acquisition and construction?  From two sources (to be mandated by legislation):  philanthropic organizations and from pension profit sharing, IRA’s, and other tax exempt retirement plans. 

IV.             But how do these plans recoup their investment and earn a return on their investment.  After a period  three years, each homeless project will be converted to Section 8 Housing for the elderly and handicapped.  This is a Housing and Urban Development Program for Elderly and Handicapped for low income people.  Under the program the Tenants pay essentially 30% of their income (usually just social security income) as rent and HUD subsidizes the balance of the rent to bring such rent to “fair market rent” for the locality in which each project is located.  The organization for the HUD program is already in place, is exceedingly organized and administered (though not without potential for improvement). The shortage of available housing for the elderly and handicapped is enormous and there are long waiting lists for housing among eligible people.  But, most important, well managed projects make a reasonable return on investment for their owners and have potential to increase in value.   Moreover, the aging of the US population is well known and indisputable: thus the ongoing need for increasing the available supple of suitable housing is incontrovertible.

V.                Finally, rules would have to be established that would required construction standards to be followed that will ease the eventual conversion of each project from “Housing for the Homeless” to “Housing for the Elderly and Handicapped.”

Summary: Thus in one simple to understand plan is at least a partial solution to not just one but several urgent national problems: (a) restoring growth to the economy, (b) reducing unemployment, (c) providing living with dignity accommodations to the homeless, and (d) providing reasonable and necessary housing to our aging populace and disabled citizens.  Updates to this proposal may be found at the author’s website:  https://sites.google.com/site/wealthcreationretention/home