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Beyond unemployment insurance: Six ideas to lift the economy

While Congress fights over extending unemployment insurance, Americans remain sour on the economy. But a few proposals show promise for encouraging growth.

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In between those views lies a range of options. Many economists, including Federal Reserve Chairman Ben Bernanke, say the economy could be helped by setting policies to bring down future federal deficits. And more policymakers are starting to focus on what America should do for a long-term growth strategy, not just short-term recession-fighting maneuvers.

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That doesn't mean it will be easy for policymakers to coalesce around new ideas. In Congress, and even within the Federal Reserve, opposing camps are pushing against each other. Here are some of the ideas being debated:

Support consumer demand. President Obama supports more aid to state governments to reduce layoffs and for the long-term unemployed. The idea is to offer assistance in tough times and to keep cash flowing to people who will spend it.

Incentivize hiring. Obama continues to sell the so-called HIRE tax credits for firms that employ people who lost jobs during the recession. Mr. Charlton in Pittsburgh, whose online business is called the Resumator, says more should be done along this line and to help start-up firms get seed money. (He hopes to hire a couple of people, but his young firm is in what he calls "survival mode.") Some economists have called for a payroll-tax holiday on new hires, or for tax breaks on business investment in equipment and research.

Tame the deficit. To some extent, this goal contradicts the first two. But many economists say the key is not so much to cut spending right now as to show commitment to bring long-term spending on health care and Social Security into line with taxpayers' ability to fund it.

Give clarity on taxes and regulation. The Business Roundtable and other groups say a major problem now is uncertainty about government policies. This can be hard to resolve at a time when policymakers are considering financial regulatory reform and policies on health care or energy. Tax hikes are also on the table as Obama considers his fiscal options, with deficits poised to persist through the decade.

"Expectations of higher taxes [may be] dampening the outlook" of consumers and employers, CitiGroup economist Steven Wieting wrote in a recent report. Policymakers "might have little ability to dampen such speculation, but, in our view, should try."

Have the Fed do more. The Federal Reserve could buy more securities (as it has already done with Treasury and mortgage bonds) to help provide monetary fuel for growth. Parallel to that, anything that helps banks get back to health and revive new lending could have the same effect. One modest move: Obama has proposed $30 billion in federal backing for new small-business loans.

Get a long-term growth strategy. This could include elements already mentioned, like tax reform and budget discipline. It also might include things like improvements in education, retraining, and promoting exports.

A mix of such strategies can help, economists say. But most forecasts call for low to moderate growth, not a rapid recovery of some 8 million lost jobs in the US.

Raghavan Mayur, president of Techno­Metrica Market Intelligence, which conducted the TIPP poll, says that so far "the political discourse does not ­really capture the intensity of the situation." He reckons that unemployment is much higher than the official rate of 9.5 percent, based on how many people in his poll say someone in their household is looking for work. Pessimism will decline, he says, when more jobs start to show up.

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