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.