I have not have the impression that politicians are necessarily good economist and our previous Administration has demonstrated extremely poor skills. The working of the economy is actually quite simple and I would like to use this blog to show the decision makers what the basic principles should be.
President Obama and his team shows to understand the basic principles. The worked out stimulus plan is not perfect to use the President own words, but it shows understanding of the issues. When you put $800 billion into the economy you need to need make sure that it is spent. Very simple. The way to ensure that it indeed is spent is to spend it mostly yourself. No tax cuts to the rich. That is ending up somewhere in the financial system, which is totally broken at the moment. As an individual you can only spent so much, so don't give rich people more money. The idea of the rich are getting richer and the poor are getting poorer is already been around for ages. So, if you give any tax cuts make sure that it goes to the bottom of the barrel where it has to be spent. If you put $800 billion in the economy and it is spend around $200 billion will come back and another $200 billion might just be saved on not having to be spent on State unemployment benefits. food stamps and other types of relief.
So, first rule: make sure the stimulus money will be spent
The second rule is to ensure that it is being spent on the American economy. The 'Buy American' rule for programs in the stimulus package is a good one. An important one. The profit made is taxable and part of the return you're expecting. Foreign countries should not complain about this. It's the government's money and they should spend it at home. Yes, it is a form of protectionism, but a reasonable and explainable one.
Rule 2: spent it at home: Buy American
The third rule is spend it on innovation. Innovation in the infrastructure, education, health care and all other forms that makes the United States ready for the 21st century and a thriving country again. Manufacturing has left the country - that is an irreversible fact for already too many years. All we can do is to make sure that we continue to innovate, have a well educated and healthy nation, which is ready to put this innovation into practice.
Third rule: Increase capital spending on innovation and infrastructure
We know that the world changes and our world leading position can only remain in place by moving with the times. We have fallen behind - it is time to catch up and every crisis provides opportunities...