I haven’t been able to sleep ever since I read that Larry Summers is leaving his post as President Barack Obama’s top economic advisor.
Why doesn’t the phone ring? I’m eating with it at my elbow. I’ve changed the way I walk to work to avoid cell phone dead zones. I’m even sleeping with the phone. And still no one has called to offer me the post.
I know the phone’s going to ring though and I want to be prepared for the BIG QUESTION: What would you do to turn around the U.S. economy?
I’ve quickly worked up this draft of an answer. I don’t now how much more time I have before the President calls.
Change the way we define the problem.
No more baby steps. You don’t fix a crisis this big by tinkering around the edges. I had this drummed into me in a business school class in 1984. The assignment was to come up with a budget to fix the New York City economy. The professor read my carefully prepared solution and laughed. Well, actually he guffawed. You think you can fix this budget by closing firehouses? he said. Now I’m looking at a $14 trillion U.S. economy with an unemployment rate pushing 10%. Tinkering with the tax code or offering a FICA tax holiday isn’t going to fix this crisis.
Admit that as bad as things are now they weren’t exactly swell before the crisis. Incomes for the average family have stagnated for the last 30 years—especially if you take out extra dollars that come from having more moms in the workforce and having one or both parents work an extra temporary job. For some workers—blue-collar industrial workers and workers without high school degrees, the Great Recession that officially ended in June 2009 began not in 2007 but in the 1980s. Even the great job creation surge in the Clinton years doesn’t look like the best of times when you look at the kinds of jobs being created—lower paying, predominately service jobs–to replace the kinds of jobs—higher paying manufacturing jobs–the economy was losing.
Let’s admit that the ideas now getting recycled in the mid-term elections from both parties haven’t prevented, turned around, or reversed that long crisis—and they aren’t likely to. Not because tax cuts, tax increases, education credits, No Child Left Behind, spending cuts, spending increases and the other patent medicines peddled by politicians don’t have any effect, but because they’re too narrowly focused to fix the 30-year long crisis.
As Larry Summers would say—if we transplanted James Carville’s brain into the Harvard economist’s body (well, that would sure be fun)—It’s the global economy, stupid. Fixes that ignore the global economy are just going to be too small or completely misguided. And those of us who live in the United States are going to have to give up some of our economic illusions. (Come on, you can do it—it’s not nearly as painful as giving up Mad Men.) For example, it’s time to admit that when it comes to exports the U.S. has become essentially a commodity economy. We export corn, and coal, and scrap paper, and we import TVs., and cars, and solar cells. Export our way out of this crisis with an extra paragraph here or there in our trade treaties? Oh, puleez!
Decide to play hardball with the big dogs. (Or fill in your own favorite tough guy sports cliché here.)
Let me give you an example ripped from the headlines, as we say here in New York. China slapped quotas on its export of rare earth minerals essential for building hybrid cars, wind turbines, amplifiers for optical cable communications networks, and the newest fluorescent lights. Companies that want to build these products and who are worried about their source of raw materials can always make sure they have plenty of rare earth minerals to work with my moving production to China. And we’re going to fight back by lowering mortgage rates (by having the Federal Reserve run up its balance sheet) or creating a $30 billion loan fund for small businesses?
It’s war out there in the global economy (which is way better than real war, let me remind you) and the battle is to secure the world’s scarcest commodity—good jobs. To stand a chance in this war, the U.S. has got to at least match the firepower of the other countries.
And in this competitive economic war, we can’t afford to have all the battles fought on our turf and we can’t always be on the defensive. European and Chinese high-speed train makers are going to fight it out to see who gets billions in U.S. taxpayer money to build a high-speed line in California. Where’s General Electric in the competition? And if we don’t have the team that can play in the big leagues in high-speed trains in California, how about we go after China’s market for freight cars or freight locomotives. It’s not like our stuff can’t compete with their stuff—in many cases all they’ve got that we haven’t got is cheap financing. (And I find it hard to believe that it isn’t cheaper to provide cheap taxpayer financing to U.S. companies than it is to spend taxpayer money saving an industrial shell from bankruptcy.)
If moving from a defensive crouch to offense means creating competitive industries from scratch so be it. It’s cheaper in the long run than paying for years of unemployment and the social havoc it causes. It’s insane that the U.S. doesn’t have a domestic source of rare earth minerals and that we’re willing to give anybody in the world control of something essential to 21st century technology.
Think big. NO BIG! BIGGER!
The world’s companies want our metallurgical coal? Fine. Have then build steel mills in Pennsylvania and West Virginia and even more car plants in Alabama. The world’s companies want our corn? Fine. Make their home countries tear down the trade barriers that keep U.S. chickens out of Russia and other nations. (Granted, it might help if we guaranteed not to dip them in bleach.)
Countries such as France and China have official national champions, companies that the government backs to drive the domestic economy and the country’s exports overseas. The U.S. has de facto national champions. They haven’t been awarded that title by some bureaucrat but have earned it in the actual market place. Intel (INTC), for example. Of course, our de facto national champions often don’t get much actual support (although we do provide last century industries like oil with hefty tax breaks) from Washington so that Intel winds up building a chip plant in Vietnam because that country supplies cheap land. The U.S. could match that. And don’t say that isn’t our system. Alabama and South Carolina and Tennessee are perfectly comfortable paying BMW or Toyota to build a plant in their state.
Get over our bad case of Not invested here. Maybe once upon a time we were justified in looking down at other countries’ technology or to make jokes about their claims to have invented the telephone. But if that superiority was ever justified (and I’ll bet my Madam Curie fan club ring that it wasn’t), it sure isn’t now. We need to stop exporting technology and start importing some of it too. I’ve got no problem with Boeing (BA) subcontracting work to Chinese companies and giving a boost to China’s aircraft industry through legal or extra-legal technology transfer. But how about some of it flowing the other way. How about a U.S. company getting its hands on the technology to build a high speed train as part of any contract in California? How about getting ArcelorMittal (MT) to transfer its best practices back to U.S. steel company partners when it builds a plant in the U.S.?
We need to recognize that you don’t win in this global economy playing with out of date infrastructure. Our airports, highways, ports, and railroads aren’t up to the standards of the toughest of our competitors. And then there’s our electronic technology where our wireless and Internet network increasingly lags. Countries, especially countries such as Singapore that don’t have huge natural advantages, spend to create infrastructure advantages. We let ours decay because it costs too much money. In the short run the expense is certainly considerable although it could be spread over years or decades by a mechanism such as a government-seeded infrastructure bank. (One of the great ironies of the moment is that to find good infrastructure investments I have to send my money overseas.) In the long term it is again cheaper than running a country in permanent recession.
And let’s upgrade our human capital too. If the workers who are feeling the brunt of the pain in this 30-year crisis are those without a high school degree, let’s make sure that the next generation has more education and the next generation even more. And make sure that it’s education that’s appropriate to the new global economy. Raising standards so that every kid getting out of high school can do 12th grade math and write good (or is it “gooder”?) is a decent goal, but it won’t get the job done in the long run. We can’t learn only English and expect that the rest of the world will too. We can’t say, We’ve got a shortage of engineers and then turn out kids who can’t do trigonometry. It will take a long tough battle but again it’s cheaper to fight the battle than pay the long-term cost of losing it.
We should recognize that there’s a potentially nasty strain of xenophobia built into this idea of global economic competition and we should fight it actively by expanding all existing programs that get Americans acquainted—or better yet immersed—in other cultures. If you play any competitive sport, you know it’s possible to play to defeat your opponent with all your strength and still go out for a beer afterwards. And it’s fun.
Your response to this is likely to be “We can never get anything like that through Washington.” (Although I do recognize that another possible response is, Thank goodness, nothing like that would ever get through Washington.)
I refuse to accept that. If the current politicians won’t act, dump ‘em. It may take years to create a responsive government. But if it took 30 years to get the crisis to this stage, what’s another 30 years fixing it?
And as long as we’re thinking BIG, doesn’t it strike you as hopelessly antiquated that we elect representatives to vote our will (HAH!) in the age of social networks and online collaboration? Why not do away with the current budget system entirely and let voters actually vote on line for what programs they want to fund? Maybe with a limit of no more than a 20% change from one year to the next to ensure some kind of continuity? (So it would take 5 years to kill the kind of boondoggle that now lives on forever.) And with a simple rule that—adjusted for the economic cycle—we couldn’t spend more than we have. Of course, to do that we’d need to actually implement a capital budget in Washington.
Or how about something like American Idol where Washington department heads compete on TV for our money. Or “Budget Survivor” where the worst government programs could get voted off the island (or out of the District.) I’d watch, especially if they had tiki torches.
Looking at that program I can’t understand why the White House hasn’t called. Come on, phone, ring!
Strengthening America is not a concern for this administration. It does NOT fit the “Social Justice” and “Spread the Wealth” agenda of the far left. Bring the third world up for justice and knock the capitalist pig americans down. Nevermind the fact of how much we spend and donate when their is a tsunami or earthquake or disaster in the world and yes we give the most. Without the USA this world would be speaking German and Japanese right now but never mind that. Our great leader bans drilling in the gulf, putting thousands out of work and then through the import/export bank gives billions to Mexico and Brazil to drill guess where? the gulf!! creating jobs for them and taking jobs away from the USA. Social Justice is the focus, NOT fixing the American economy. Healthcare for all was the focus, NOT the economy. Do you think cap and trade will fix this economy? WAKE UP!!
It sounds like some of you are close to suggesting that changes in government policy cannot solve our large problems. That is clearly false.
For example, for decades we have heavily subsidized the real-estate industry and engaged in an orgy of deregulation of the financial industry. If you were in those industries it was a sweet deal while it lasted, but it was dumb policy. What we ended up with was a huge misallocation of capital to excess real-estate, and enormous, costly, burst speculative bubbles. It was a disaster. And those subsidies came at a real cost to the rest of the economy, including the exporting part of the economy. No one should be suprised that we have too many McMansions and too few exports.
Another example: our immigration policy. We have this tight quota on H1B visas. These would-be immigrants are exactly the kind of people who could be our top engineers, entrepreneurs, etc. And we force them to go home? Dumb.
Our health care system is an expensive disaster, and misguided government policy is at the core of that disaster. To give just one medium sized example, if the government is going to be a major purchaser of drugs, it is dumb to prevent them from negotiating for the best price.
I could go on and on, with examples large and small. Entitlements. Public pensions. Energy policy. Monetary Policy. Taxation. Etc. Etc. There is so much room for improvement it makes you want to cry.
There seems to be some confusion in these posts between wise policy choices and activist policy choices – those aren’t one and the same. I realize Jim’s take was on the activist end of the spectrum, but if you look at his specific examples, he does have some good points.
In any case, the larger point is totally valid. We are making clear policy errors, and we need to get those fixed. They aren’t getting fixed because the movers and shakers are people like Pelosi and Frank on the left, and, heaven forbid, Palin on the right. We could use a few less of those and a few more people like, say, Paul Volcker.
Unfortunately, those who say the blame ultimately lies with the electorate really have it right – which again gives little cause for hope.
sabre_jenn, name calling won’t get you anywhere in this discussion nor should it. If you disagree with the article that is great, but if you think we are sitting on our hands waiting for the government to fix everything, then you didn’t comprehend the entire article or the comments thereafter. We are all painfully aware of the government’s impotence that at this point.
I agree that change is in everyone’s individual hands, and the choices we make with our dollars and our time can shape the future. One of the best assertions in the article, in my opinion, is that we need to learn more about other cultures and speak more languages than English. Too many people still like to say “America is the greatest country in the world”. Previous generations didn’t have to say that because they proved it. We need to get off our high horse and have a complete change of attitude, and I’m not sure what it will take for that to happen. Now this lazy dope is going out to his organic farm to harvest dinner. Oh wait, I guess I can’t because I’m sitting on my hands. Darn!
sabre_jenn,
Careful about grouping all 22 posters together. The cheerleading section here ridicules any and all political discourse. I think quite a few people held there tongue.
To your point–If you think housing was a bubble then take a look at a graph of upper education costs. It’s nearing parabolic! Throwing more money at it will only make it worse, as we know the more money pushed means the more will be absorbed at the expense of innovation. Starve the beast and it’ll find a way to provide a good education at a reasonable price. That seems a much more reasonable alternative than complaining non-stop about usurious student loans, then compounding the problem with a Washington laser focus.
Maybe the unskilled, “chronically unemployed” could afford training, thus adding value to the economy, if only they could afford tuition. Hell, it’s at least a million dollar investment to earn an MD, and then you have to buy a practice. All the time you’re attacked as “the rich” who needs to pay your fair share. No wonder they charge so much…
(is that better sabre? Maybe the cat’s out of the bag now)
Excellent plan but let’s fix the educational system BEFORE we go to twitter voting. And I would add that we should stop encouraging everyone to vote and start encouraging folks to only vote on issues that they have taken the time to learn about. The idea that the outrageous TV ads in the weeks before an election can determine the outcome is just plain scary.
Mr Jubak– here is one simple way to improve education in the US:
Many cities already have maximum student teacher ratios. The number varies by locale, but as example, my district mandates no more than 18 students per teacher (18-1).
We should implement laws mandating a maximum number of non-teaching employees per student.
In most cities I am familiar with, there are as many (if not more) administrative overhead (everyone who claims to work in education but doesn’t teach) as there are teachers. Plus the administrative overhead gets paid more than teachers.
In my city, janitors make $120,000 including massive overtime pay. Teachers make less than half of that.
Want to know America’s priorities? Follow the money.
I seem to be in the minority here, but I will state my case anyway. Mr Jubak, you did not do your homework.
The US already has an Export Import Bank — that is the name of it. Also, many departments already give cheap loans all over the place, including the Dept of Agriculture that finances all the corn exports you talk about. Your idea of funding cheap loans for exports (like China) is a very old idea, and has been done in the US — dozens of times.
Education is a fine idea on paper — except that we already offer high school education to everyone free of cost (costs are paid by property owners, not the students). Most municipalities offer free transportation to and from school (they are called school buses). If Americans can’t be bothered to attend school and pay attention in class, no amount of bureaucracy in Washington can ever fix this.
You also neglect to mention that the US already spends three times as much per student on “education” as any other country on Earth. THREE TIMES AS MUCH — ALREADY. Of course, the board of Education building has central air conditioners, fully loaded staplers, nice office furniture, pens/pencils/paper in abundance, etc. Meanwhile, most teachers have to pay for classroom supplies out of their own pockets
Americans want administration and bureaucracy, not education. Opinion polls are nice, but when the actual dollars get spent, this country buys administrative overhead — and neglects students.
If students don’t want to work, and parents want to focus on administrative overhead — obviously schools won’t work. Throwing more money at this (or making a longer school year like Odumba proposes) is not going to fix the underlying problems.
The saying used to be “when the going get tough, the tough get going”… that was before we had the baby boomer generation. Now the saying is “when the going gets tough, we will make yet another government program and then ignore the problem” That is the problem. Government isn’t going to fix anything, and that should be abundantly clear to anyone who looks.
Mr Jubak– the answer to every question is not to create yet another failed and redundant government program. You are just dead wrong.
If Americans set our minds to it, we can become globally competitive again. If we sit on our hands and expect “the government” to do it for us… well that’s how we got into this 30 year disaster in the first place
We will have to make our kids go to school and pay attention. We will have to insist that money allocated for education does not go to administrative overhead. We will have to give preference to stores that source product here, rather than import cheap.
We have to show equal respect to the people who design great products (ie engineers) as we do to sales. Right now, we pay sales extra commissions just for doing their jobs, and we call engineers nerds. Lawyers and investment bankers make seven figures for their ability to talk fast — while top engineers are paid like blue collar.
And now this loser in the White House wants to pay doctors like they are uneducated blue collar. Health care isn’t free and it isn’t anyone’s “right” to get treated at someone else’s expense.
Your article was depressing. The comments made me think the US has no hope. Twenty two lazy dopes sitting on their hands waiting for the government to fix it for them.
That isn’t how America came to be.
Great thoughts. I live in California and I too can’t see why we have go to foreign countries to build high speed rail. If we don’t know it then we should learn it, and if that takes making a deal that says you want to build high speed rail for us you have to given us the details of how it works, then we should do it. After all this isn’t going to be the last high speed rail needed in the country and even if the government went to Boeing and said build the Air Force a plane, they would expect all the details of how it works and was made to be available to them. High speed rail is no different. And how do people think the Chinese got this knowledge in the first place, and how do you think they are getting all of our knowledge?
Unfortunately the average voter and politician only live on the slop of the media feed ideas. People here state that they don’t think it will change because of there is no way to change our government. I will go one step more and say I don’t think it will change because that would take a voting public that actually thinks for itself and can actually act on what is good for the nation instead of what they have heard or what is good for them for the next ten minutes.
Jim, your finest article ever! Obama said it’s going to take time to create jobs. He’s right. It will take 2 more years before there’s a job available in the White House.
Jim: Bravo, bravo, BRAVO!
Your column should be force-fed to those who claim to “run” the government.
There’s little I can add to the encomium already bestowed on you by other readers.
Keep the good stuff coming!
Infrastructure use to be one of the value-added attractions for residents and immigrants. Now thanks to ignoring the issue or kicking the can down the road, we ( (or our politicians depending on who you want to blame) are leaving a sorry legacy. Good essay.
I think you’re spot on.
Jim- Excellent article [again]- maybe your best effort ever for the Good of the Order. You get my vote, my sister’s vote, and if necessary, I will personally instruct that dog of hers… so make it unanimous here.
I believe you illuminated every nail- of real importance- and whacked it squarely on the head. Great work.
Perusing the responses so far, I note that Thinking Big, No Bigger is awlful difficut for most of us who have been trained [one way or another] to Think Small. I totally agree with you that education- serious education- will correct that part of the problem.
Thanks again, please don’t get too far away from that phone- I will be sending your article to my entire congressional contingent and to the President. [Someone ought to slip it to the OpEd page of the Times of NY, too…]
Jim, now you are talking! You have written some great stuff over the years but I think this is your best article yet. I am growing increasingly pessimistic that we can ever fix any of our problems by simply voting. Our system of government has gone so far into the abyss that I think we need to blow it up and start over. I love the “Budget Survivor” idea, commercial-free of course and live with real-time internet voting. Proponents of the losing programs would have to go work in the winning program for one year. That might get some of those department heads to actually put serious thought into what programs the people would actually vote for.
bobisgreen – reminds me of the Simpsons episode where Homer needs an expensive operation but he opts for the el cheapo surgeon Nick Riviera. The last thing Homer hears the surgeon say as he drifts off to sleep on the operating table is “What the hell is that?” If only Congress was a cartoon, we could just redraw them whenever necessary.
WOW!! What did you have for breakfast this morning? It had to be more than just Wheaties. Well said….
Right, south, how can we push through big changes if we cannot agree on other things that seem so common sense? We’ve supported govt. involvement in healthcare for years and shunned invoking the interstate commerce clause to rectify the lack of competition. Then, we castigate anyone who proposes opening up state borders (i.e. McCain vs. Obama, debate 1 I believe). We scream about the rising cost of health care, mostly pushed by state mandates and backed by insurers to raise revenue, but fail to credit the costs of advancement and personal spending decisions creating demand-push. Then we complain about insurance companies limiting care on the top end, but pushed through a government run system and explain that healthcare is a resource that must be limited. What? Have we gone mad? With all the constant contradictions, it’s hard to trust anything most these clowns say.
I’m onboard for drastic changes, but please let’s try to remember how we got here. Pragmatism and capitalism need to shake hands. We could start with raising the gas tax to pay for some infrastructure (and keep the money at home), dramatiaclly drop the useless corporate tax rate, and kill some of these onerous environmental regulations that have become small-business pesticide. And if you want to get all uppity about going green then please save it. Raising the gas tax would do dramatically more for the environment than some of these mom-and-pop attacks that EPA has been hurling out of their mint.
Only masochists need apply for Summer’s position. Your views are right on, Jim, but only voters who keep up with global events, have a vision for the future, and those who don’t depend on monies from lobbyists could realistically comprehend what our nation has given away at the negotiating table. Our education system is a disaster as you have pointed out and very few can even identify the cause which you have outlined so distinctly. Once again, like the rest of your readers, THAT’S WHY I READ AND RECOMMEND YOUR COLUMN whenever I have the chance.
Jim,
were any government agent actually to propose what you are proposing she would immediately be branded a socialist and likely would “resign” within weeks. There is simply no trust in the government getting more involved in the economy. See, e.g., Obamacare.
Long time reader, first time poster.
I think this would be perfect as testimony before the appropriate congressional subcommittees! Maybe you can team up with Jon Stewart and do a financial segment during the Rally to Restore Sanity next month.
amen brother
Bought JUBAX at Schwab today. Letting Jim Do It!!
I’m with bluecollarMBA. Great post.
1. please run for president.
2. Then bring home manufacturing
Way to Bring it…..Jim !!! You got my vote… Nice article.
The patient is on the operating table, knocked out, and with knife in hand, the surgeon begins much like I did with the first squirrel I ever cleaned after a hunting trip. My grandpa exclaimed (voice of experience) “come on, grab the damn thing and get into it like this!”
Unfortunately, our present “surgeon in chief” has the same amount of experience as that scrawny teenager I described!
You’re right! Bold strokes are needed! And because the patient’s cancer is all over the abdominal cavity, taking out a piece here and a little piece there is futile!
The best fix for ineptitude, stupidity, and slobbering all over precious philosophical ideas is like a simple cold remedy…THE AMERICAN VOTER!
Don’t worry, Jim, I’ve got my phone at the ready too! I don’t think they’re gonna call either of us because they just don’t get it. Our hope is, I think and hope, will be surprisingly enough, the comparitively undereducated, out of work, fed up, super educated, regular (no personal axe to grind), yes, even perhaps fueled by “tea baggin'” people who will show up in the voting booth in November….Then, 2 years later, these same common everyday folks show up again.
We need a “sprint” out of the starting blocks in a long marathon. I still have my phone in hand!
I’m with you Jim!
Also, how about we require every citizen to vote like Australia which gets a 95% voter turnout. That would put a big damper on monied special interests.
And shorten term limits for congress to eliminate long-timers that always seem to get in bed with whoever gives them the most money.
Or how about we eliminate lifetime pensions and health insurance for congress. If you want to serve your country… then serve, which means you don’t expect anything in return.
Anything to help congress focus on doing what’s good for the country and the people and not their own skin.
bravo. well said.
If only there were more on the Capitol that had your reasoning skills.
I’d quibble over some details, but Jim’s basic idea is dead on target. Washington has its head in the sand, and spends all of its time on short term band-aids, maximizing giveaways to its various narrow interest group supporters, and simultaneously refusing to face up to our long-term problems. What is completely missing, and badly needed, is a coherent idea of what we want our economy to look like in 10-20 years, and policy that is designed to get us from here to there – and that’s designed for the real world, not the imaginary world of some rigid ideology.
Unfortunately it doesn’t appear that any kind of rational, coherent government is likely any time soon. Increasingly, the extremes on both sides are gaining power and pushing out common sense, pragmatic people. Bloomberg had some good comments about this problem the other day, but I have heard almost no one else talk about it.
Spot on, Jim. You are the best at putting the situation we find ourselves in into a cogent and coherent article. Of course Washington will never call; you make too much sense!
Finally, an articulate, well reasoned big picture of our economic woes with solid proposals to solve them. Yes, we are in a war in which we will only succeed, if we have a strategy. Offense is the best defense for our economic health. You shouldn’t get a call from the White House, you should occupy it! P.S. you have been my “main man” for investing for the last seven years. Average annual gain 11%: thanks HUGE