A Call to Arms: My Rough Draft
Let’s make this blunt:
The US government can borrow at 2.2% today. That’s the market price of ten year money. That is an insanely cheap cost of funds. It shows, if free market analysis means anything at all, that the market is not in the slightest bit concerned about the American deficit at the moment. Nor at any time over the next ten years. So we have an entire decade to debate and fix the long term trajectory of the debt, which is essentially a debate about becoming a less imperial nation – cutting offense spending; and restricting health care costs in an humane way. Period. Those two budget items are in danger of swallowing the economy. They need hacking back. The question is how and when. That is a political discussion, not an economic one.
Meanwhile the US government should be borrowing every last dollar it can at these cheap rates and investing like crazy in renewing the national infrastructure so it is bright and shiny new, and thus capable of supporting the innovation of the private sector as we look for competitive advantage and fend off the threats of low cost labor in emerging nations like China and India.
The government should be pouring money into rehabilitating our road, rail, and electrical grids. It should be sponsoring alternative energy research and then subsidizing it so we shift away from fossil fuels. It can spend to induce the market. It can augment the market. Or it can simply supplant the market. Maybe all three approaches in various combinations depending on the problem being solved.
One thing we know for sure: the notion that markets deliver everything, anyhow, anywhere, and at the best price is a thoroughly outdated, outmoded, and, frankly, rather quaint idea. It died during this crisis. Government has a role to play. We need to admit it.
The opportunity is right in front of us. Cheap money is heading our way. We should grab it with both hands. We owe it to our children, and to generations beyond them, to grasp this moment and clean up three decades of malign neglect.
Of course we could always just print the money, but there seems to be an even greater aversion to that, so let’s borrow.
The benefits of this attack on our problems?
Bending the arc of wealth creation upwards; creating space and support for private innovation; plugging the gaps and blind spots in the market to make the economy more complete; and being outright greedy. Money is cheap. Use it.
Next: productivity. The wage and productivity link has been broken for three decades ever since government was sidelined and the regulatory burden lifted from the economy. The wheels moved more freely, so those who could run more quickly stole all the goodies. Profit dominated wages. This is untenable over the long term, and destructive of the entire American vision. We need to stop it. Our divided society is a direct result of the adoption of neo-libertarian policies. It is antithetical to democracy, but very supportive of plutocratic republicanism. Those of us who believe in democracy need to fight back. This means using government to eliminate asymmetries through policies like strengthening unions; raising the minimum wage – or tethering it more precisely to measures of inflation; putting grit into big finance to raise transaction costs and hamper capital flows; and generally supporting collective action to provide support to wage earners in their fight to be rewarded for their efforts. Some of us cannot run as fast as others. An un-handicapped race produces few winners. A democracy needs more. This offends the libertarians and their ilk. So what. Their individualist mantra is profoundly anti-social and inoperative in a large complex society like ours. A democratic economy is a convoy crossing dangerous waters: if it sticks together we all succeed. If it separates the laggards get picked off or preyed upon. And, unfortunately, even the most fleet amongst us are laggards when compared with sharks.
Next: slash banking. I mean slash, not prune. Our financial system has been revealed as an inefficient allocator of our nation’s capital resources – two huge bubbles in three decades is an awful and damning record. It is badly managed; poorly regulated; and invasive. It is a pernicious weed rather than a centerpiece of our garden. It sucks in capital for its own use, rather than deploying capital for socially beneficial use. So slash it back. Re-regulate it. Separate speculation from banking. Carve out the payment system – it is a public good – and either nationalize it, or place into the care of commodity style consumer banks, taxpayer backed, that have no connection with speculation. Re-write the laws so that the managers and traders of speculative portfolios are invested as partners – and so they gamble with their own and not taxpayer money. Withdraw any taxpayer support, explicit or implicit, for speculative investing. Eliminate evils in the derivatives market – indeed think about getting rid of most, if not all, the derivates market by restricting it to trades based upon asset ownership. If you don’t own an asset you shouldn’t hedge it. Put the burden of proof onto the so-called innovators to justify all their hair brained consumer products. And get the lawyers to simplify rather than complicate the fine print so we can all understand it – the law is not a product development weapon, it is an even handed institution working for all of us, not just Wall Street.
Lastly: undo the great risk shift. For three decades we have shifted increasing amounts of risk onto the shoulders of those least able to carry the burden. We wrapped this in the guise of making people more responsible for their own futures. But in so doing we overwhelmed them. We chopped away at the predictability of lifetime incomes by getting rid of reliable employment. We moved more and more of the risk of retirement onto the average worker through the trick of making defined benefit plans into defined contribution plans. The result? We now have a generation of retirees looking at poverty or highly reduced circumstances. We tied their futures to the randomness of the stock market – a market so opaque that even the experts routinely screw up.
We never gave them the money management skills to succeed. And, even worse, we did not compensate them for the risk being foisted on them – remember wages have been flat, so our workers were forced to take on greater risk without any greater reward. None of our leaders, bankers, or free market economists would ever accept such a deal. But that is the deal we forced down the throats of the middle class. So of course we produced an economy of debt and fear. We added volatility right as we extracted protection. We must reverse that.
Another aspect of this is the disaster of our health care system. Unexpected health care cost is the number one recurring reason for personal bankruptcy in America – problems with real estate have eclipsed it only temporarily. If ever there was a sign that the average American cannot save sufficiently to offset the risk inherent in our economy, this is surely one. We need collective action to disperse risk as broadly as we can in both the retirement and health sectors. These are the two greatest costs the average household necessarily faces – education is a third, but is more optional – and are exactly where we have piled on risk during the years of illusion. For those of you who abhor collective action: then try to adjust the risk reward balance a different way. You will fail because the market you so loudly proclaim is the vehicle for the bifurcation I am pointing to as the source of the problem. The market failed. It’s time to move forward, not back.
Theses four steps are predicated on my observation that the policies of the past three decades, and the economic theories that enabled them, are utter failures. They have produced a deeply divided nation whose future is diminished and uncertain. It is time to stop debating the failure and to acknowledge it. It is time to stop harping on about the collapse of the theories that led us into this swamp, and to develop new ones. Above all else we no longer need to concern ourselves with the petulance of those who abetted the decline – they are irrelevant to the future. Let historians talk about them. We need action.We need action now. You may – I hope – disagree with my short list of things to do. So be it. Then make up your own and let’s discuss. But not for long: we must, and need, stop the malaise from withering our future to nothing. To do that we must act.
