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Want to Fix the Economy? UI Experts Have Ideas

While presidential candidates Barack Obama and Mitt Romney spar about who has the best plan to fix the U.S. economy, some University of Iowa professors have some suggestions of their own.

Stimulate spending through targeted tax cuts, suggests Jon Garfinkel, professor of finance. Because families with lower incomes spend a greater proportion of their after-tax income than do families with higher incomes, Garfinkel suggests cutting federal payroll taxes on this group to nothing or a very minimal amount. The consumer spending would stimulate the economy, he says.

Raise and enforce the minimum wage, argues Colin Gordon, professor of history. The current federal minimum of $7.25 an hour is—in real, inflation-adjusted dollars—nearly $2 below its peak in the late 1960s. Full-time work at $7.25 an hour is not enough to lift a family of two above the federal poverty level, according to government statistics. Gordon suggests raising the wage in step increases to $14 to $15 an hour. Raising the minimum wage would have a substantial impact in an economy in which job growth is heavily weighted towards low-wage service employment.

Cut the deficit, says law professor Robert Miller. Miller says the U.S. deficit cannot be substantially reduced simply by raising taxes or by taxing the rich more. Miller said the federal government must make substantial, permanent reductions in spending, especially entitlements.

Stop bickering. It hampers consumer and investor confidence, scolds Tom Rietz, professor of finance. The current partisan political environment creates incredible uncertainty, he writes. "Health care reform passed. Don't demonize it. Don't threaten it. Get over it and move on. Maybe revisit it after a pre-specified time lag of 10 or 12 years."

Invest in infrastructure, say counsel Alice Schoonbroodt, assistant professor of economics, and Martin Gervais, associate professor of economics. Another stimulus package should be heavy on money for improving the country's infrastructure. "The argument is that borrowing today at very low rates in order to bring forward projects that are already known to be productive at a time when factors of production are relatively cheap and abundant should be a no-brainer," they write.


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