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New York Times Economix Blog


How Washington Should Respond

November 16, 2011

By Josh Barro

It’s been challenging for Congress to respond to Occupy Wall Street’s concerns because it’s not entirely clear what the movement wants Congress to do. The protesters range from conventional liberals frustrated that the president’s agenda has been stymied, to hard-core anticapitalists, to (unfortunately) anarchists breaking shop windows in Oakland. It’s no surprise that elected officials have treaded lightly in responding.

That said, many Occupy protesters have voiced concerns that ought to be more prominent on Washington’s radar screen. Unemployment remains unacceptably high, and many Americans are drowning in debts like student loans and mortgages, which the economy has made more difficult to repay.

The Occupiers’ proposals to address these concerns have been sometimes absent and sometimes implausible. But there are a few concrete, politically viable changes that Washington could make that would address some problems that protesters have highlighted.

The most important would be to loosen monetary policy. A shift to nominal G.D.P. targeting, advocated by a vocal group of economists on the right and left, would result in a healthy near-term boost in inflation. This would help fix American balance sheets, because inflation reduces leverage — loans are in nominal dollars, so inflation reduces borrowers’ real debts. More importantly, such targeting would put people back to work and spur faster real economic growth.

Some Occupy protesters have made some outlandish and unproductive proposals on consumer lending, particularly in calling for widespread forgiveness of debts. That would undermine the financial system, but more targeted actions would be useful, including eliminating the special rules that make student debt nearly impossible to discharge in bankruptcy, and modifying mortgage loan balances as proposed by Luigi Zingales and Eric Posner.

Finally, Congress should adjust immigration policy to make it very easy for high-skilled immigrants to come and work in the United States. One of the main ways inequality is felt in America is through the sharply rising cost of health care and higher education, services that the middle class increasingly struggles to afford. Runaway inflation in these sectors is driven in part by the need to hire an ever-increasing number of professionals with scarce skills. Importing more doctors, nurses and professors would slow or even reverse inflation in these sectors, increasing the purchasing power of anybody who buys health care or education.

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