President-elect Obama has proposed a $750 billion stimulus plan to get the economy going again. I believe he is thinking too small. He has limited the size of the stimulus because of concern about the budget deficit. That horse has left the barn. He expresses hope that a stimulus package will revive the economy in the second half of the year. Even if you could persuade people to spend money this year, I think that is a terrible idea. State and local government budget shortfalls are going to be so huge in 2009 that another major bailout is inevitable.
The U.S. does not need a stimulus package. It needs to rethink its economy. Our financial system is in shambles. President Bush nationalized the money center banks and then gave them hundreds of billions without any strings attached. As a result, trust has evaporated in the financial markets and no one wants to do a big transaction to which the Federal government is not a party. You can't fix that by asking consumers to spend a few hundred dollars. Besides, that only postpones the day of reckoning because consumers are already overextended.
We need to ask ourselves what kind of economy we want. On current course and speed, the US economy will likely deteriorate in a manner similar to what the US auto manufacturers have experienced over the past decade. I believe it is possible to return to the vibrant growth that has historically characterized our economy, but it won't happen without a long-term strategy of transformation. In terms of capital investment, I suspect we will need to invest trillions over the next twenty years. As unattractive as budget deficits are in principal, they are nothing like as threatening as a moribund economy.
Thanks to Katrina, the I-35 bridge, and other disasters, no one argues against the need to rebuild America's infrastructure. What is missing in Washington is the insight that even when it doesn't kill anyone, America's infrastructure is second rate on its way to third world. We used to be proud of the fact that our infrastructure was the best in the world. Hurricanes caused less damage here than they did in neighboring countries. When I was a kid, there was an ice storm in the Northeast that knocked out the power for a few days and the nation was shocked. A few weeks ago, a similar storm knocked the power out in some New England communities for more than a week and hardly anyone noticed. Why? Because the country has gotten used to the fact that things don't work very well. In the first six months of this year, the section of Silicon Valley where I work lost power half a dozen times for periods of many hours. A few weeks ago, the town had to shut off water to our neighborhood for half a day. And I won't mention cellular coverage, which is worse than in most of Africa. I'm talking about Sand Hill Road in Menlo Park, the Broadway of America's venture capital industry.
The really peculiar thing is that most Americans don't see enough of the world to understand how far behind we have fallen. On a trip to Italy last year, I was shocked at how much better their roads are than ours in California. I had better cellular coverage on a ship in the middle of the Mediterranean Sea than I have in many parts of Silicon Valley. Our kids have fallen behind those in Asia and Europe, who spend roughly twice as much time in school as ours do. Why? Because our school year and school day remain unchanged from a century ago, when the country was agrarian. Add all this up and it's no surprise that incomes in America were static during the last economic upswing and are now declining. Our national infrastructure is so far gone that we can expect lower highs and lower lows in future economic cycles.
We need to stop thinking about infrastructure as an economic stimulant and start thinking about it as a strategy. Economic stimulants produce Bridges to Nowhere. Strategic investment in infrastructure produces a foundation for long-term growth. Imagine a twenty-year plan to upgrade our power grid, public education, transportation systems, and other infrastructure. The longer the time horizon, the easier it will be to align interests between those doing the work and those paying for it. President-elect Obama has a brief window of opportunity to align the country around an economic Manhattan Project. I hope he seizes it.
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