We recently emailed some of our favourite economists to ask how they’d fix the economy.We asked for both reasonable and off-the-wall ideas.
One response stuck out most for its seeming infallibility.
JPMorgan Chief U.S. Economist Mike Feroli believes small, periodic increases in a national sales tax, combined with parallel reductions in other taxes, would permanently right the ailing economy.
Here’s his idea in full:
“One crazy idea I like is to institute a series of periodic, small increases in a national sales tax. This would have the effect of creating deeply negative real interest rates by increasing the incentive to pull forward demand into the current period when it is less expensive. To offset the disposable income drag it would need to be coupled with equal and offsetting decreases in income and other taxes. This idea has been kicked around by mainstream economists (Feldstein, Kocherlakota, etc.) and nobody has been able to poke any major theoretical holes in the argument, but at the same time people realise it is a politically tough sell, so it has remained in the realm of obscure academic journals even though it is a guaranteed demand igniter.”