No it's not the budget deficit. Nor is it the chance of sliding back into recession. What's holding us back is a policy deficit.
At a time when the economy is stuck in a deep and unusual malaise--corporations are hoarding cash, unemployment is stubbornly high, credit is tight, and most of us can't figure out how to make ends meet each month--we need a bold plan of action. Yet our policymakers are acting as if everything is okay and the economy requires a few minor adjustments. Instead of big thinkers running the show, we have fine tuners.
In his column in the New York Times, Paul Krugman criticized Federal Reserve chairman Ben Bernanke for not taking aggressive action to stimulate employment and avert a possible deflationary spiral. But the Fed's approach is simply more of the same. It's yet another example of the policy vacuum we have been living through since the financial panic erupted in 2008. When historians judge this era, it's a safe bet they'll lay the blame with our policymakers. Throwing trillions of dollars at the banks may be bold in the sheer scale of money that has been spent (and will be paid for by the next generation) but it didn't exactly involve creative thought.
Think of it this way. Joe Homeowner bought a $500,000 house with a $400,000 mortgage and then the value of his home dropped to $350,000. He lost his life savings. So what does the government do? In effect, it gives the bank $50,000. Joe fends for himself. No wonder Wall Street is hiring while the rest of the country goes bankrupt!
To make matters worse, the financial 'reform' package just passed by Congress won't boost our financial and economic system. We have squandered a unique opportunity to re-imagine the workings of the financial system so that all Americans benefit. Instead, the consensus in Washington was that 'reform' has left the industry more or less the same.
A failure of imagination, a lack of persistence and a deadly complacency is eviscerating our economy. And millions of Americans who are either out of work, struggling to keep their jobs or relying on their savings to make ends meet are paying the price. If nothing else, let's start with jobs. We have an incredible national brain trust for solving problems. At the very least, as a nation, we can make smart investments in education, training and infrastructure that will pay off for years and create jobs in the process. Let's not settle for the incremental that can only preserve the status quo.