Prof. Robert Edelstein: How to Put Money Back in Consumers’ Pockets

What will it take to get Americans to open their wallets, spend money, and stimulate the economy? One answer is to increase workers' take-home pay, but how?

Professor Robert Edelstein, the Maurice Mann Chair in Real Estate and co-chair of the Fisher Center for Real Estate & Urban Economics, proposes three forms of stimulus to increase personal income and ultimately turn workers back into consumers.

Edelstein proposes:

1) FICA Holiday: Temporarily eliminate employee social security withholding payments (known as FICA) for the first $50,000 of income for all wage earners with a gradual phase out for incomes above $50,000. That equates to an instant 7.65% increase in take-home pay. “If you give anyone who makes less than $50,000 more money, they are going to spend it,” says Edelstein.

For those who argue that the social security system is already broke, Edelstein responds: “Social security is self-funding for at least another 30 to 40 years. We are drowning now. We need to fix and grow the economy now.”

2) Federal Subsidies for Essential Workers: Edelstein’s second proposal calls for the federal government to subsidize or provide grants to local and state agencies in order to save essential public services such as police and fire and public schools that are facing cutbacks or closures. “The only agency that can do this is the federal government," Edelstein says. "It’s an immediate stimulus."

Edelstein says this plan would assist local and state government in maintaining a stable workforce during difficult financial times, which is likely to pay social dividends as well as minimize public sector organizational structural disruption in the future when the economy is revived.

Edelstein notes that if public sector employees are dismissed, they cost the federal government money through unemployment payments. Consequently, he adds, the net of these grants from the federal to state and local governments is partially offset by the prospective reduced unemployment insurance payments.

3) Jobs Program for Youth: Edelstein proposes the creation of a long-term “universal service” jobs program targeted at (otherwise unemployed) young workers, ages 18 to 26, similar to the Works Progress Administration (WPA) programs during the Roosevelt/New Deal era. Like WPA’s relief programs, Edelstein’s version of a “universal service” plan would be funded by Congress and could also include military service.

“This program would give students something to do, and a way for them to stay busy and develop skills until the economy improves,” says Edelstein, “It also would take the pressure off the unemployment system.” He also supports a five-year jobs program for those 50 and older.

To those who criticize any stimulus package, Edelstein says just look at Ireland: “It was doing well five years ago. Then, when the subprime crisis occurred, Ireland decided to balance its budget, and the economy has fallen like a stone.”