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After The Stimulus: It's Time for a New Foundation
The Obama administration needs a stronger narrative. If the president is to succeed in the recovery from economic recession, repair the multi-faceted damage of the Bush years, and create sustainable economic growth for the future, he has to have a compelling story line. Most Americans don't easily understand economics--but they do experience economic reality. They need an explanatory framework, if they are going to support far reaching reform efforts led by the president and the government.
Obama's Inaugural address was a let down to many who had expected not just soaring rhetoric but clarity as to the tasks ahead. Critics of the speech point out that no memorable lines were spoken--nothing on the political scale of FDR's famous, "We have nothing to fear but fear itself" (see Adam Cohen's new book Nothing To Fear for the origins of the phrase, as well as a brilliant depiction of FDR's key advisors). The speech was vague as to why the nation is at a crossroads; we were not told who or what is to blame, nor exactly what must be done. Instead, there was a call for a new era of responsibility. It was inspirational to see an African-American sworn in as president, but the nation expects more from Obama than simply being the first black President (as he no doubt does of himself). His supporters and admirers want him to be a great president--a transformational rather than a transitional leader.
Obama's performance at his first press conference was a marked improvement. It was, as one ABC reporter put it, "a teaching moment." In a calm and confident voice, the president conducted a public seminar on the economy, explaining in laymen's terms the Keynesian rationale for his stimulus package--the $790 billion Economic Recovery Act that he will soon sign. He offered clear metrics by which to judge his performance on the short-term economic front: job creation, revival of the credit markets, and stabilization of the housing market.
Unfortunately, Secretary of the Treasury Tim Geithner did less well in his first public outing with the press. He was not clear and often sounded tentative and unsure of himself. Unlike the stimulus bill, the administration's credit revival plan appears less than adequate. It..."seems to be yet another child of the failed interventions of the past one and half years: optimistic and indecisive," comments Martin Wolf, the well regarded economics columnist for The Financial Times. Wolf argues that it is a plan that hopes for the best, but does not deal boldly enough with the deteriorating financial sector.
My wife Sue Toigo (who works in the investment business and knows many of the bankers who are apologizing before Congress) thinks that Obama needed a strong woman to clear up the nation's financial mess, and that he should have asked former New York Banking Superintendent Muriel Siebert, the first woman to have a seat on the NY Stock Exchange, Sheila Bair, the no-nonsense head of the FDIC, or Laura Tyson, former chair of the Council of Economic Advisors and a business school dean, to be his Secretary of the Treasury.
Even if he had picked one of these capable women to be his Iron Lady, she too would need a narrative from which to work.
There was one line that went little noticed in Obama's Inaugural that might provide language for framing his economic story when he addresses a joint session of Congress on February 24. In his January speech, the new president pledged to reform the Federal government's approach to education, health care, science and infrastructure in an effort to "lay a new foundation for growth"--and he repeated the words "new foundation" in passing at his first press conference.
The phrase "a new New Deal" (mea culpa: I popularized it in the fall) has been overworked by the media to describe the Obama administration--and the White House has not suggested other words. It's time to replace the New Deal rhetoric--even the First 100 Days imagery--with Obama's own words: A New Foundation.
In his upcoming speech to Congress, President Obama could begin by saying that the state of the union is not good. "The economic situation is dire. While we have moved boldy with the economic recovery bill and banking reforms to stabilize the economy, these measures will take time. There is no magic bullet. Above all, we cannot return to the old ways of speculation and private excess....
"To restore genuine economic prosperity for all Americans, we need to build a New Foundation for economic growth. We cannot go back again to the days of easy credit, greed on Wall Street, and borrowing abroad to purchase foreign made consumer goods. We need to build a New Foundation for a 21st Century economy--one that is environmentally sustainable, fair to working families, and builds on our American strengths as a hard working, innovative people. We need to become an America that builds and creates, not just borrows and consumes. To accomplish this will require all of us working together to build this New Foundation upon which we can construct genuine prosperity."
The president's speechwriters can elaborate on the rhetoric. The point is that Obama needs this kind of story line to sustain his political efforts in the months and years to come. As Nobel Prize winning economists Paul Krugman, Joe Stiglitz and other progressives have argued, the economic change of course that is needed is serious, deep seated and difficult. It will continue to be opposed by conservatives who dislike an expanded role for government, and by many who are stuck in old ways of thinking about the economy. Above all, it will be a challenge to the idea that any kind of economic growth is good, and that simply reviving the GNP is enough to measure success for a president and his administration.
"We've been consuming rather than investing. We're suffering from investment-deficit disorder," notes New York Times economic columnist David Leonhardt (in his survey article in the Sunday New York Times magazine, February 1).
If we are not to return to the old model of consumption-led economic growth, then what might take its place? What will be the engines of growth for the future--and what will be measures of successful outcomes?
President Obama has offered some hints of his thinking with talk of "green jobs"--job creation by retrofitting public buildings, revamping the auto industry for greater energy efficient vehicles, and moving the economy over time to non-fossil fuels. A down payment on retrofitting is included in the stimulus bill, but it's just a beginning. The existing stock of 110 million homes could be made more energy efficient. The US Postal Service could go almost completely green. Postal Rate Commissioner Ruth Goldway has called for the conversion of over 200,000 US mail vehicles to electricity, and for Post Office buildings to become solar powered, complete with electric docking stations. A green postal service would be a highly visible, daily reminder of Obama's commitment to a new economic strategy (even the uniforms could be changed to green).
Public investment can provide some of the funds for these efforts, but as U Mass economist Robert Pollin points out, the mobilization of private capital will also be necessary. Banks could be required to devote a percentage of loan portfolios to green investments. Expanded tax credits could be provided to homes and businesses for installation of solar and other renewable energy. Funds from a cap-and-trade emissions program or a carbon tax can be recycled back to the public in rebates to spend on energy saving measures.
Retrofitting and other green efforts will create jobs in the US. Pollin writes (in the Nation's special February 16 issue on Green Recovery): "The central facts here are irrefutable: spending the same amount of money on building a clean energy economy will create three times more jobs within the United States than would spending on our existing fossil fuel infrastructure. The transformation to a clean energy economy can therefore serve as a major long-term engine of job creation."
The Obama administration can also spur technological innovation in the private sector through creation of a Green NASA at the Department of Energy to fund research into more energy efficient batteries, solar cells, lighting, heating and cooling systems, and even fertilizers. Other government departments could fund research into affordable low-tech energy devices suitable for export to developing countries, and make purchase of these products part of a new foreign assistance strategy.
A serious program to develop high speed rail corridors in the US would not only create jobs; it could lead to more balanced economic growth. Just as commerce and housing has developed along major highways like Route 128 in Boston or I-50 in the south, many mid-size cities would expand or undergo renewal along high speed rail corridors in California, the Upper Mid-West, and parts of the Northeast and South.
Innovation in health care and educational technology can also spur healthy economic growth. Harvard Business School Professor Clay Christensen is certain of it. In his recent books, Disrupting Class, and The Innovator's Prescription, he and his colleagues explain how more sophisticated and strategic use of electronic technology combined with networking can "disrupt" stagnant centralized systems and decentralize education and healthcare to improve outcomes for individuals (and society), and create new waves of economic growth. Christensen deserves to be nominated for the Nobel Prize in economics for his work, and he should be consulted by the Obama administration (fyi: he is a distant cousin).
Reducing health care costs, combined with universal coverage, eliminates one of the anchors weighing down American companies. Healthier citizens are more productive and happier, and healthy children come to school better able to learn. Better educated, healthier children commit less crime, reducing societal costs of policing and incarceration. Diagnostic products developed by "disruptive technology" become sources of jobs, and new products to be exported as well.
American education, especially higher education, is a leading export by attracting foreign students to the US. New learning technologies can become export products for innovative US firms to sell in Latin America and Africa where educational systems are weak and in need of modernization and expansion. The correlation between investment in education, technology and economic growth is well established (and documented in Claudia Goldin and Lawrence Katz' new book, The Race Between Education and Technology). The synergy between public and private universities and the private sector in the Bay Area led to the development of Silicon Valley industries. The school of winemaking at UC Davis has played a role in the successful development of California's wine industry. Many of the leading vintners in Napa and Sonoma studied at Davis, and it is a continuing source of human capital and scientific research. These are just a few examples of how public investment in education creates the foundation for an innovative private sector--truly effective public-private networks.
State colleges and community colleges provide retraining for out-of-work Americans, as well as life long learning opportunities for older Americans, and boot strap programs for making the transition from high school to higher education. Public and private educational institutions are also centers of culture for communities, providing homes for orchestras, dance companies, public radio stations, and theater groups. In the current economic crisis, many state governments are cutting back on just these kinds of educational investments, when they should be increasing them. That's why the economic recovery package with its financial aid to states and localities is vital as a stopgap measure---but it is only a necessary first step.
Public investment in non commercial sports facilities can also be a part of a New Foundation strategy. During the New Deal, the WPA and related agencies built 12,700 playgrounds, 8,500 gymnasiums, 750 swimming pools, 1,000 ice skating rinks, 64 ski jumps, and numerous public golf courses. In the 1930s, membership in private golf courses and country clubs dropped, but municipal golf courses and public tennis courts were crowded. Soft ball leagues boomed, as did use of public beaches and swimming pools. Leisure time was democratized.
The nation needs a similar growth in sports facilities, especially in urban areas. Sports activities reduce health costs, improve quality of life and reduce crime. A campaign led by the hoopster president could make us a nation of players, not just spectators (amateur athletes purchase lots of gear too). Of course, professional sports will go on, fans will cheer for their favorite teams--but corporate sponsorships and over the top Super bowl parties might diminish.
A renaissance of healthy, safe food can be promoted by the new First Family. Already a new assistant chef has been hired who likes to cook healthy, locally grown foods. The expansion of urban farmers markets (a political movement begun in Santa Monica in the 1980s) allows small local farmers to make a living and creates jobs in the restaurant and food industries. Michelle Obama might want to pay a visit to one of the farmers markets in the DC area (there is one every week on the grounds of the National Institutes of Health). Successful small businesses have grown from start-up stalls at local food and crafts markets.
Another part of a New Foundation strategy should be a make-over of the Small Business Administration into a center for the support of entrepreneurship and innovation. The country needs more of what INC columnist Bo Burlingham calls "small giants"--companies that produce good products while treating their workers fairly, respecting their customers, and protecting the environment (see his book, Small Giants--Companies that Chose to Be Great Instead of Big for examples). A New Foundation banking system would provide loans and business advice to these kinds of dynamic small businesses rather than make speculative, nonproductive investments.
A New Foundation strategy for spurring both public and private investment can lead to more jobs, and to changing the contours and content of economic growth.
We need to measure the outcomes of the economy in more human terms. An international commission headed by Nobel economists Joe Stiglitz of Columbia and Amartya Sen of Harvard is reviewing alternative economic indicators, and looking at how to devise better ways to assess quality of life--new measures of economic, social and environmental status. The report is due this April. President Obama could embrace the report by inviting Stiglitz and Sen to the White House to discuss their findings, An added benefit is that the commission was championed by French President Nicholas Sarkozy, so the meeting could also make for good public diplomacy.
President Obama's speech to Congress this month is a chance to refine and reboot his message of change by explaining to Americans his vision of what the change will be. He can offer concrete examples of how he will ignite these engines of growth, and explain the human metrics by which he wants his efforts judged. He can ask the nation to join him in building a New Foundation of prosperity--one that will make a more decent, fairer and more productive society.
The New Deal is history. The challenge of constructing a New Foundation is Obama's clear and present opportunity.
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Interesting that the definition of "tax the rich" has now moved down to $75,000 in many provisions and down to $46,000 in some provisions.
Thank you. You have a lot of great ideas.
Watching the debate on CSPAN - the Republicans are basically hanging themselves.
They have forgotten that they are working for the people of this country.
They are so set in their opposition to the Democrats that they have forgotten that they are the minority and that they LOST! If they had such a good plan what were they doing in the last eight years?
Our country needs a lot more investment just to make up for the lack of it over the last thirty years.
Wendy in New York City....you are still stuck on "we won, you lost"...sounds a little school-yardish, doesn't it?
The fact of the matter is, Obama said what he had to say to get that extra 3% of the vote, made promises he knew he could not possibly keep, or even act on. Now we see a man, not too dissimilar to GWB... Using fear to hasten this spending bill. Politics as usual. Why would anyone posting on this site be shocked? We are all educated. We all have intelligence.
By the way, Pelosi has to catch a plane to Italy at 8pm Eastern time...tonight...for a 10 day vacation....see any other reason to pass this spending bill without allowing the American people a chance (we were to have at least 48 hrs to mull over the 999 page revised edition, according to the Democrats "The fact that the Democrats have now broken their promise to have the public able to see the bill for 48 hours may drive more Democrats into the Republican camp." I copied and pasted this from an article archived on THIS website. The fact is, not a single person in the Senate has read this bill, all 999 pages. Wake up people. Is this the type of governing you want?
They're lost, alright. To the public their strategy makes as much sense as the plot to the TV show Lost.
But it is clear now that they have adopted a "scorched earth" policy, burn everything in sight to deny Obama sustenance including the middle class.
Wendy.... the Democrats are now on the hook for this stimulus package. If it does not show a noticeable improvement in the economy by the 2010 elections, there will be a lot of angry, out-of-work voters headed to the polls wondering where all that money went.
The new foundation you describe is what I believe Obama supporters "thought" Obama was campaigning on. But it turns out he may have been letting voters "fill in the blanks" instead. Obama missed the opportunity to turn these "vitural promises" to voters into action using the trillions for bailoout and stimulus, but he chose to stay with Bush financial policies and trickle down stimulus. Even the no-brainer issue of getting troops out of Iraq in 16 months is evaporating. Obama should have stuck with the "vision" of his supporters. Now his adminstration is looking chaotic from being larded with Clinton/DLC types, a total lack of reformers, puzzling attempts at bipartisanship with the Republican "taliban insurgency", and daily political gaffes due to an incompetent cheif of staff. The agenda for a New America is pretty clear. The problem is that America has a Clinton II adminstration instead of the first adminstration of President Al Gore.
Excellent article by Mr. Shearer. Maybe the President has to declare something like going back to the basics :
-- public healthcare and retirement like in Europe : it costs a lot less , makes everyone happier, and removes the competitive disadvantage that US manufacturing is in.
-- industrial policy so that there is a dynamic interaction between the public and private sectors . This is a great part of the secret of countries like Germany, with their success in manufacturing
-- the financial sector, regulated to were it was 30 years ago.
A few clear bold things that everyone understands. My fear is that Obama will be too timid and tentative. Now he has the political capital to push through big things that will make a difference, and change history for the better.
Please take a look at the bankruptcy public health care is in in Europe before you post things like "it costs a lot less". It doesn't. But somebody has told you that it does and you are repeating it without checking the facts. You are right that it does make people happier. I can vouch for that. Well, you get what you pay for. In any case, public health care does not make European manufacturing any more competitive. Please take a look at Europe's structural unemployment numbers.
The German success in manufacturing is based on their excellent education system and a two century old history of small but flexible manufacturing firms which are more often than not privately owned. If that's where you want to take this, you need to establish good schools for one thing and you need to groom a couple of generations of family businesses.
I would suggest we give President Obama four years to rebuild. After all, we gave Bush eight to destroy the country.
:-)
Yup but we need to have a clear and honest discussion of healthcare models like in Europe and Canada. Interesting that newer car models by the big 3 have usually been built in Canada and not here, that might be a reason. One thing that everyone outta be clear one HUMAN BEINGS COST MONEY, there's no way around it.
There is a two tier health care system in many European countries and a blackmarket for it. For poor folks, they can go to a run down public hospital and sit in a waiting all day for some mediocre treatment, or you can buy some insurance and go to a decent hospital and get decent treatment, or pay a doctor under the table for an after-hours visit and get excellent treatment. Regarding manufacturing, the education system in the vast majority of the United States is excellent. It's the inner city schools that are in poor shape (and IMO not amount of govt aid can help them). A large number of manufacturing jobs are un-skilled or semi-skilled labor (like in textiles, apparel, furniture, plastics) and the education folks receive in high school is more than enough to perform the work. IMO public h.s. education is good enough for most skilled manufacturing jobs like in autos/heavy manufacturing as well, although technical college could be a benefit, possibly a requirement for many positions.
It doesn't. But somebody has told you that it does and you are repeating it without checking the facts.
Not only have I checked the facts , I am enjoying the benefits right now along with my family, as I write this ! as an American citizen living in Europe, I have seen all aspects of the situation, including the paperwork and costs of hiring and paying my employees.
In Europe, health care and retirement are NON ISSUES since 50 years ago.
Anyone with a choice would have to be INSANE to prefer the US system
cheers !
You've got it all wrong, bub. The "New Foundation" should, first, recognize the FACT that we live on a planet with finite borders and resources; that the earth simply cannot support 6 and a half billion of us for even the next two generations.
Stabilizing then reducing the birth rate by paying couples not to have children should be the basis of saving the planet (which, of course, should take priority over saving the economy). Revoke completely tax deductions of having more than two children and pay couples an enormous amount of money to limit their offspring to one. Under these guidelines, the woman with the fat lips and 14 kids would be incarcerated just to keep her from having more children.
The planet is probably beyond saving at this point as far as population's effect on the environment. But it would be nice if we at least recognized the REAL problem facing us and try to do something about it, however ineffective.
Right so....after this bill is rammed down the american peoples throats, a bill that has so little transparency, has not been looked at and analyzed enough, one which the CBO says will fail, well this is all insanity. But transparency will come after this bill? Right, thats what was said before.
Has anyone thanked, in a posthumous kind of way, Isaac Asimov?
Anyone who's ever read the Foundation series knows how hard, dangerous and costly it was to establish the "New Foundation."
I'm being facetious but not too.
Mr. Shearer has proposed some great ideas with real substance. Actually makes me think there are some realistic solutions to the dozens of huge problems facing the United States (and the world).
Ideas need to be followed up with action. I hope everyone who is sincerely concerned about the future will take action today, tomorrow, and every day thereafter to make things better.
What exactly am I supposed to do about the fact that my neighbor has bankrupted himself by paying twice as much for his home than it's worth?
I am looking forward to your concrete proposals how I can help.
Obama has a great ability to involve people, but the reaction I'm seeing here in the upper south is that the rabble is roused. But roused to what? Most people I talk to, even those with college degress, do not understand the issues. They don't understand how congress works, nor do they understand economics or the financial system. Moreover, they don't understand the political process at the local level, nor do they participate in ways that truly matter, such a running for local office.
Part of the communication strategy should involve concrete, defined ways that people can get involved. I'm in a struggle now to convince peoplel that if they want change that affects their lives, why don't they run for local office? I can't tell you how much resistance I'm getting!!! Everyone wants Obama to do the heavy lifting on the big issues, while they ignore the corruption and ineffectiveness at the county commission.
If Obama can set a strong and clear agenda, maybe that process will trickle down. But it has to be a process about people setting an agenda, achieving consensus and working at the state and local level, too. The people I see just want to see a solution on the nightly news that will make their lives wonderful again. The heavy lifting of acutally running for office to get a seat at the decisionmaking table always seems to be someone else's job.
excellent observations.
I think the Obama administration needs to create more incentives for businesses in the manufacturing sector to invest in facilities here in the US. First, I believe the payroll tax should be eliminated and paid for through the federal income tax, which upper income folks mostly pay. Second, the tax code needs to be modified so that businesses don't benefit from having operations abroad rather than in the US. I believe this can be done by forcing corporations to pay the full amount of tax to the US government minus the tax paid to that country (locality or whatever). So if the US has a 35% tax rate, and a US multi-national corporation has operations in Duganland, for example, and pay a 15% tax rate, the corporation will then have to pay the US the other 20% so the tax advantage for operating abroad is stripped away. I think both these moves would be infinitely more beneficial than protectionist legislation, which would be entirely counter-productive IMO.
about the payroll tax - how about levying the exact same payroll tax on employers for every overseas employee whose doing a job that could be done here instead? The overseas workers wouldn't have to pay (obviously!), but the company still would, so there'd be less financial incentive for them to employ someone overseas. And even if they still did, well, the government could use the additional tax revenue to pay for worker retraining here in the US. Call it a "retraining fee" instead of a payroll tax because I'm sure there are all kinds of legal/regulatory/tax issues involved in this anyway if you call it a payroll tax.
Employees pay payroll taxes for services the government provides to them. Taxes are not a one way street. So unless you want to send that money oversees to other governments to pay for police, defense, education etc., you better not call it a tax. Why don't you simply call it robbery? That's what it boils down to, anyway. So why not call it what it is?
This year on January 14th I rang the opening bell at the New York Stock Exchange. We are a non-profit celebrating our 20-year anniversary. We operate in 9 states with 23 offices across the United States. We are sustainable with 1,600 employees. Our operating budget has grown over 14% in the last two years.
As the founder of this successful venture I constantly question how our team makes this happen? There are obviously a variety of reasons that enabled us to grow so much, but one pervasive theme is “paid volunteerism.” It is the new vocation of generation Yers: (those who were born around 1984). It can also apply to altruistic baby boomers. You know, those of us who want to make a difference as well as a living; those of us who feel that there IS a greater good than a year end bonus.
More and more of us are waking up to the fact that we can make a difference. Although it is tremendously difficult, it is geometrically proportional and very rewarding. Sure we all work to make money but we also work to feel good about what we do. We have made an impact and this is obvious in every facet of our organization. The majority of people in my organization work very hard, but they have fun. They have fun because they believe in what they do.
Robert Stack
President and CEO
A new foundation means -- let's be honest -- with the dumping of capitalism. It simply hasn't worked -- it has ruined much of the world in fact.
I hasten to point out that our country began and prospered for well over a hundred years on Hamilton and Clay's mercantilism. This country's economy was never framed on capitalism in any sense of the definition -- and those who say it was have not read American history.
Incidentally, China has been using what is termed as "legal protectionism" which has worked greatly in their favor. This underscores the fact that their prosperty didn't come by way of capitalism but by mercantilism.
For more on this subject check out Stormy's analysis at Angry Bear. http://angrybear.blogspot.com/2009/02/legal-protectionism-new-mercantilism.html
"This country's economy was never framed on capitalism in any sense of the definition -- and those who say it was have not read American history."
Please show me which part of US history is NOT based on capitalism, i.e. the private ownership of the means of producing wealth. Mercantilism is in no way opposite to capitalism. And one has to point out that Hamilton's and Clay's mercantilism were essentially built on top of a slave owner society which had just committed a genocide to steal the land of the original American population. In the 19th century the US behaved very much like the other global powers of its time in colonialist ways. It just had the good wit to re-brand its colonialism in less harsh terms. In any case, we are the only country in the world that still keeps a global colonial fleet and military bases all around the world. After WW II the great economic success of the US was based on free trade and not on protectionism. It is still based on it, except that the internal distribution of this wealth is rather uneven. On the other hand, in comparison to it slave owner society and racial segregation history one could argue that the US was never more egalitarian than it is today.
It takes a lot of Chutzpah to redefine the US in the romanticizing terms of your post. Either that or it takes total ignorance of real history.
Oh let's be real honest capitalism can exist in repressive countries (China) democracy isn't needed. Pehaps we should give thought that socialism (or some form of it, or something else) can exist in democracies.
I am somewhat unclear about the concept of how political speeches are supposed to "teach" the public about economics. I always thought that if one wanted to learn economics one had to have a fairly good grip on numbers and sometimes not so simple math and a willingness to actually learn the hundreds of technical terms required to describe the framework in which markets move money and value around.
But then, I could be wrong. Maybe, just maybe, if the president found the right words and enough people had the attention span to actually listen for 30 minutes, maybe they would get it. I mean, wouldn't that be better than to sit through hours and hours worth of hard study of real economics?
But I am less than optimistic. Most Americans failed to learn the consequences of the compound interest formula. I bet not one in a hundred Americans can tell you what net present value is (something that everyone should be able to apply to large personal investments) and few will be able to work the amortization schedule of their home loan. And therein, not in the quality of the speeches by either the President or Mr. Geithner, lies the real problem.
The only thing I've determined from this whole "change" thing in the last 3 weeks is that "the more things change, the more they stay the same"
I am so sorry to hear that you are utterly disappointed that the president has not yet reversed the laws of nature and the structure of commutative algebras for your financial convenience.
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