If the stimulus package now being considered in Congress includes tax relief, and if we want people to spend the money they get, we should make sure that the money comes in "spendable" packages. Not as a lump sum, but as dribs and drabs. One simple way to achieve this result is by providing the tax relief in the form of a payroll tax (social security tax) "holiday."
We shouldn't be paying people bonuses when they do the right thing. We want a society in which people do the right thing because it's the right thing. Yesterday, President Obama called on us to be hopeful and virtuous. "Virtue" is an old-fashioned word, but Obama evoked it because it is part of our national heritage and because it is "true."
We'd all like a car that gets 100 miles to a gallon. The forces of friction and air resistance that slow us down are an expensive annoyance. But when we're driving a car, we know where we're going and we're in control. Fast is good. Financial life is not as predictable as driving. We don't always know where we're going. We're not always in control. Black ice is everywhere. A little something to slow us down in the uncertain financial world we inhabit may be a life saver.
Better regulation and smarter incentives—sticks and carrots— will perhaps protect us from really bad bankers (and drug makers, steel makers, and newspaper publishers), but it will never get us good ones—the kind we want and need.
When economists have the president's ear, all their whispers concern incentives and self-interest. We need psychologists whispering in his other ear, about the economy, education, healthcare, and more.