Monday, December 29, 2008


Those of us educated in the dark ages of the last century at least benefited from an unwavering emphasis on the “three R’s.” We learned not only to read, write and do our sums, but also to spell creatively, thereby facilitating modern marketing.

In dealing with the eocnomic crisis, the new administration is not likely to have the same freedom. It’s got to get its own set of three R’s – relief, recovery, and restructuring – right and right from the start. Larry Summers’ op ed piece in yesterday’s Washington Post (“Obama’s Down Payment”) suggested a promising direction. The incoming economic point man touted Obama’s program in the works, the “American Recovery and Reinvestment Plan,” as a way of supporting the “jobs and incomes essential for recovery while also making a down-payment on our nation’s long-term financial health.”

For me, relief is a matter of putting cash and credit in the hands of the many millions of individuals and businesses who desperately need it to avoid calamity. Other sources indicate that the new administration might be considering some form of broad-based immediate tax relief as a way of reinflating disposable income. While they’re at it, the Obamistas might consider relieving employers of FICA payments for the first six months of 2009 to ease labor cost pressures and business cash flow crunches.

Recovery is more a matter of recovery sustained over time with a generous dollop of confidence building. Smart regulation will help in that regard, as we try to convince American creditors with money and those without enough to trust one another again. In his op ed, Summers revised the Obama jobs target again: now it’s 2.4 million private sector jobs and 600,000 government positions. However, as I previously commented, even three million private sector jobs over the next two years wouldn’t come close to qualifying as a real recovery.

Restructuring is what interests me most. That’s partly a matter of investment, of course. Summers makes a good pitch for considering spending on infrastructure, health care, and education as “investments that will work for the American public.” The he adds an argument for “laying the groundwork for recovery and future prosperity … [by] shedding Washington habits.” That implies no Congressional earmarks and other changes in the stupid way we’ve been allocating government resources for a long time now.

I have no problem with Summers’ arguments – as far as they go. However, as I never tire of repeating, long-term success requires fundamentally changing the way we save and invest, produce and consume, export and import. Such a transformation goes way beyond income relief and public investment, no matter how huge the number of dollars injected into the economy. We also need a big increase in private investment in plant and equipment rather than paper assets and estate. That will require, more than anything else, a wholesale revamping of the American tax system. Failing such a fundamental change in the incentive structure, why would a rational investor put money in production facilities in this country when competing nations offer far more attractive terms and conditions?

So, while pursuing relief and recovery, we need to give equal attention to a national strategy to restructure the American economy so that it can be fully competitive in global markets. To get that right, we need a clear, coherent vision of what that economy would look like -- and we need it soon. Otherwise, we’ll end up making a thousand uncoordinated decisions that so muddy the waters as to make subsequent transformative change virtually if not literally impossible. I’m hoping that’s what Summers meant when he concluded: “Far from being an excuse for inaction or delay, the magnitude of the work ahead is all the more reason to begin that work.”

Charles Blum

No comments:

Post a Comment