New Paper on Stimulus and the States

Let me begin with one caveat: this blog is not going to feature excessive self-promotion. A string of press releases do not a blog make.

With that out of the way, I want to bring your attention to a new policy brief by Eileen Norcross and Frederic Sautet entitled “The Main Street Economic Recovery Proposal: Will It Bring Us Out of Recession?” Clearly, stimulus package focusing on “shovel-ready” projects will invariably be played out on the state and local level.

In the paper, Norcross and Sautet recommend:

Instead of engaging in activist fiscal policy, the government should announce a policy of fiscal prudence promoting lower public spending and thereby creating a good context for entrepreneurial activity.

1) Let the price mechanism run its course. Prices in some economic sectors have been artificially inflated for too long. Downward adjustment of prices will release resources from unprofitable sectors to more profitable ones where they are most useful.

2) Restore a climate favorable to entrepreneurial discovery and innovation. In order to discover new business opportunities, entrepreneurs must have the confidence that they can invest and be rewarded for it. But while the institutional environment must reward entrepreneurial activity, it should not socialize losses by subsidizing failure.

Fred and Eileen also wrote about the states and stimulus in November in Forbes.