Mix n Match: the Politics of the Economy
I haven't drawn attention to the fact that we run two blogs - this one business and economics and another on public affairs. Now that we're in a position where it's difficult, to say the least to seperate the two and we're headed into tonight's last debate let me point you at the following excerpt (if you follow the URL pointer you can see the entire thing along with the accompanying readings that compare and contrast the two candidates approachs and economic teams).
This builds on the short paragraph in our last post here by sketching in some detail what we think a total, integrated and comprehensive economic strategy should be.
Populist Panderings, the Candidates and Real Solutions
Comprehensive & Strategic Economic Program
Given all that what should we be doing - and therefore what should be looking for in tonight's debate. Well two things. One as close to this outline as possible and two minimal populist pandering, bearing in mind "nobody can handle the truth". That said in both his acceptance speech and the last debate Barry basically walked right down our reccy's while Johnboy appears to be improvising as he goes and throwing out one offs - not an integrated program. You might/ought/should invest the time to listen to this interview very carefully - from the guy who's called it for three years now !
Nouriel Roubini, New York University, Economics Professor Nouriel Roubini, an economist who predicted the depth and magnitude of the current financial situation before the decline of Bear Sterns, discusses the indicators he saw and his recommendations for stemming the financial downturn.
Step 1: Get Credit Flowing Again - we've been discussing this almost exclusively for the last several posts. While it's still very early days yet we think that the basic elements are in place and being acted on as rapidly as possible.
Step 2: "FIX" Housing - we're not going to get the economy back on it's feet while Housing continues to drag so much. At the same time too many people bought too many houses for unsupportable prices with funny money. Until prices come down significantly MORE it won't start self-correcting. In other words we need for the homeowners and the lenders to take another 15% haircut, write it off and re-negotiate the loans to something more sensible. And it'll need a serious institutional framework.
Step 3: Major Fiscal Stimulus - the last so-called recovery was put together on the Housing ATM and was pumping $500-700B/year into the economy at least. The economy will fall into a major serious recession unless we stimulate it and that stimulus needs to be of the same order of magnitude. This also needs to be quick, targeted and temporary - not another political boondoggle (fat chance I know but....). Tax cuts won't do it. On the other hand the impact on the deficit is irrelevant for a lot of reasons (still be low as a % of GDP, worse w/o stimulus). Things like extended unemployment benefits, more rebates, and direct spending programs fit the bill. Lots of very...y good economists like Larry Summers have tabled excellent proposals (btw - Barry's econ team is non-pareil and Larry's on it. See below).
Step 4: Infrastructure Investment -the US has let it's electrical, waterway and transportation infrastructures deteriorate to the point of...well never mind. A massive decade long infrastructure rebuilding project would see us get new electrical grids, new highways and transportation systems and possibly new power plants and alternative energy supplies. This would have the benefit of providing enormous fiscal stimulus, i.e. creating jobs and making a major long-term investment for things we know how to do. BtW - major sidebar. The long boom of the '80s and '90s was primarily built around two things. Supply side is utter nonsense. Reagan got it going the old-fashioned way with deficit spending and Clinton got lucky and also cut the defense budget. Bingo, that's it.
Step 5: Strategic Investment (Energy, Biosystems, Materials) - we need new industries and we need to get off of our oil dependencies. There's things we can do in each and both. For example by increasing conservation as well as mandating enormously higher mileage thru better materials and engineering we could get a huge jump for the next ten years. Then we need to build new power plants, particularly nuclear, we need to open up our own offshore deepwater to oil exploration and we need more refineries. That all togeter takes us into the next decade. Beyond that we need some major alternatives - and don't believe 'em. We don't have the knowledge or technology do magic yet. For example we should really be heavily emphasizing coal but need major new technology not the Rube Goldberg fixes running around. So a concerted national effort (does the word Manhattan Project ring any bells) to create major new energy sources and technologies would stimulate the economy, create new industries and provide us several paths to the future.
Combine that we major parallel investments in new life sciences and materials, both because they offer the best hopes for the Next Big Things and because they are synergistic with energy investments. For example if we pie-in-the-sky about Fusion we need the new materials for the reactor vessels. Or new lightweight composites for high-temperature turbines. Similarly new bio-sciences offer up their own benefits not least of which is designed alternative energy crops as well as way to control and manage environmental problems. The real beauty of this is that it doesn't take a lot now because it's all at early stages.
Step 6 - Education Investment: the decline in average income is due more to natural evolutionary shifts in the kinds of labor demanded by an increasingly technical economy. When the US Economy really started on its' accelerated path after the turn of the 19thC few know that a key ingredient was the widespread development of high-schools and the resultant upgrading of the skills and knowledge of the population. Education is the co-dependent imperative along with creating new industries IMHO. (Readings(Education): the Single Most Important Domestic Policy Issue) 