Those with a few decades under their belts know the drill in times of economic recession in the US: build some roads and bridges, throw a bone to business so they’ll hire more Americans, add a little education picker-upper and a grandiose up-beat speech about America rising again to meet the challenges of the day and you have yourself a recovery. Is it really that easy and what would it take to really turn the ship around because if you are like me, you have a nagging, uncomfortable feeling that this time it’s a different ball game.
The president’s speech sounded good the other night but it will be largely ineffective this time around because this recession (yes, I believe we’re already in another) is based on credit and liquidity crises. Obama knows this but lets first state the problem succinctly and then circle back to ‘why’. People are not spending because they are uncertain about their jobs, their income and the future. Businesses are not hiring because there is no demand for their products and they too are uncertain about the future. Banks aren’t lending for a number of reasons but suffice to say that banks withdraw from lending in a worsening economy. It is a downward spiral and cannot be addressed until the government cleans up its fiscal mess and provides an optimum climate for lending and business. Remember, government borrowing and debt are tightly coupled with private sector borrowing and commerce and also significantly; government can’t create jobs – they can only provide a fertile environment for job creation. So, you can give a business all the tax breaks it wants but if there is not a sound business reason to hire workers (greater output needed to meet increased demand) then all the incentives in the world will not work. Infrastructure projects will put people to work but those are ‘sleight of hand’ job creators because their salaries have to be paid by money that ultimately comes from you and me. After the infrastructure projects are done we are left with more debt, which is exactly what we’re trying to avoid. Obama’s a smart guy and he’s surrounded by smart people – he knows all of this so why would he put forth a plan he’s knows will not work? The only logical explanation is that his speech and plan are an attempt to place himself in a positive light (and the Republicans in a negative light) for the upcoming election. It is not surprising nor something to be ashamed of, in fact it is simple human nature; we all want to look good in front of the boss. The American people are his boss and he’s trying to look good.
So how do we really turn the ship around? What real, concrete steps would be needed to get unemployment down and the economy growing? The answer lies in our own experience but I’ll warn you, it involves pain, sacrifice and mindfulness.
Each of us with a credit card at one time or another has been in a situation where we charged too much and making that next payment to keep the balance manageable was painful. That’s what now needs to be done on a national level; it’s time to make the payment. You write the check but the work starts now in the form of sacrifice. In the days to come you might have to postpone that new purchase or fix your car yourself or skip a night out or get a second job or not eat anything until the check clears (yeah, I’ve had to do that before).
I’m a normal 50 yr old guy, an electrical engineer, the owner of a small tech business and healthcare IT consultant and computer programmer from time to time. I try to read a lot. This is my common sense based approach to tackling our economic problems. Oh, and by the way, these are structural in nature and are in the order of importance.
1. We all know the big bucks we’re spending on wars. Our eyes glaze over somewhere between hundreds of billions and trillions of dollars. If we stop the wars, the spending will stop. Polls suggest that is what most Americans want but the generals and the military industrial complex that Eisenhower warned us about have the President’s ear. He’s listening to them and not to us and they have convinced him that military objectives must be met for our best interests to be served and our security to be achieved. Obama has forgotten that our strength comes from our economy, therefore, it should take precedent over the world’s chessboard. If the military’s job is to protect the country, who protects the country from an overindulging military? Answer: the Commander in Chief. Remember this during election time.
2. Many Americans are out of work. The real unemployment rate is somewhere around 15% (those that have stopped looking or given-up are not counted in the government’s figures). In this economy, “beggars can’t be choosers” takes on a new meaning. Our labor costs are simply too high. If you are pro-labor you will dispute all that I’m about to say but one indisputable fact is this; if you go to Walmart and you see two items that do the same thing and you perceive their quality to be the same and one is $100 and the other is $200, which will you buy? Like most of you, I would choose the $100 item. This reality juxtaposed with the changing nature of American work – less brawn and more brains – points to a new employment paradigm where the worker negotiates one-on-one with the employer. Unions were necessary in the ‘brawn’ days but they don’t fit well into the new paradigm. A ‘brains’ future and one-on-one relationships with the employer afford the individual greater control over his or her destiny: it ties a person’s skills and hard work to his or her success and really, we all feel at some level that this is the way it should be. In the ‘brawn’ union scenario, your efforts are combined and averaged with hundreds or thousands of others for remuneration arrived at through collective bargaining – not exactly being in charge of your destiny. Union industries will always exist in the future but the direction of the country needs to be more individual and ‘brain’ based – we should recognize that and move forward. In summary, the second structural change thus becomes: A national-right-to-work law. This includes ditching many of the prevailing wage laws now in place including Davis-Bacon. Public sector union collective bargaining rights should be removed or greatly curtailed. Tenure for public teachers should also be removed. The greatest immediate positive societal impact could be gained by applying these changes to the teachers unions. Make teacher pay performance based and let them know that the sky’s the limit if they perform. How can we extract the maximum performance out of our educational system if it is not performance based? How can an economy dependent on brain-power survive if its children are not the best educated?
Organized labor will not go willingly down this path. They need to search their souls and realize that every industry and every constituency cannot be protected and that everyone needs to sacrifice or no one will prosper and reap the benefits of a functioning economy.
If you believe as I do, do not resort to unfair emotional accusations and name calling when discussing the issue with labor proponents. Calmly articulate that it is just an inevitable transformation that has to happen sooner rather than later. Speak intelligently and above all, be compassionate.
Still with me?
3. You may think me an ‘out there’ liberal hippy type but legalizing and taxing marijuana would do much to decrease incarceration rates (and therefore costs), limit the influence of Mexican cartels, create jobs, divert wasted police resources to more pressing matters and it would help states balance their budgets. Many feel marijuana is less harmful than alcohol and ample studies for such claims can be found on the web. This is a no-brainer. In fact, its low hanging fruit that I’m surprised we haven’t yet picked. We need to get over our failure on the ‘War on drugs’ – it hasn’t worked.
To politicians and tough on crime types I would say, it doesn’t mean you’re weak if you admit this. Policing has never been effective when its design is contrary to our nature. Find a solution that works within the framework of our nature and stop wasting money on this war.
4. Another piece of low hanging fruit is the ethanol program. We all know this is a sham but it hasn’t been scrapped because the corn producing states have these things called Senators and Representatives and those Senators and Representatives are doing their jobs for their farmer constituents. We should recognize that. Their minds can only be changed when the farming community asks for a cessation of the program. In other words, the farmers have to do the right thing for the country just like the unions, teachers and government officials (including the president) need to do the right thing.
5. All energy subsidies need to be ditched including oil, gas, coal, solar, wind and nuclear. The public’s treasure should not be heaped upon certain industries to make them more favorable in the market place – that’s just fairness and common sense. Don’t we want a level playing field in all things? You can’t ask for a level playing field in one area and then deny it in another without being a hypocrite. The bottom line is all costs and benefits need to be considered in our energy mix and that is best done by the market in the absence of subsides that favor some over the others. Cut subsides to save money and increase efficiency in the economy at the same time.
Coal and petroleum are big and rich thus this change will have to stem from the ballot box and from entrepreneurs and early adopters of new technology who recognize that the end does sometimes justify a higher per unit cost of energy.
6. Tax rates and policy do make a difference and Obama rightly did advocate lowering the corporate/capital gains tax rate and simplifying the tax code. If the capital gains rate is such that it is financially advantageous to move to other countries, then why wouldn’t you go there? We are wrong to blame the CEOs that transfer the jobs overseas. If it is better for them here, they will stay here but labor costs also have a significant impact on this calculus thus there is significant coupling with point 2.
Good news! It finally looks like there is enough common ground among Democrats and Republicans to get some of this passed.
7. End the bank bailout programs and start hammering the banks hard by prosecuting. If the economy isn’t going to have the benefit of banks that will lend money then there is no downside to prosecuting and hammering them hard. While we’re at it, do the bank reform we should have done in the first place.
Note: See which politicians in 2012 speak to this point.
8. Next is Medicare. I can’t find serious fault with Paul Ryan’s plan and it keeps the system basically solvent and cuts fraud. It does put some of the onus on the recipient but again, we all need to chip in. The current system is untenable – doing nothing is not an option. Come up with a competing plan that is better or pass this.
Ask yourself, how do your elected officials feel about Ryan’s plan?
9. Use the data and data mining techniques to solve health care. What I mean is there is an incredible amount of data out there on what does and doesn’t work with regards to health care, medicines, practices, diet, etc. The government is in a position to capitalize on this data by letting the data drive policy. Encourage what works, discourage what doesn’t. We’ve all heard about needless surgeries and expensive new drugs where cheaper, tried and true drugs would have worked – this was not addressed in Obama Care 1.0. and it needs to be addressed if we’re to keep down healthcare costs to a reasonable level. Done right, this should save everybody money.
Additionally, American’s subsidize the rest of the world’s drug supply. They charge full price here and the rest of the world rides off our coat-tails. This has to stop and I don’t know why this hasn’t gone before the WTC.
10. Many find the pay, benefits and early retirement of Federal employees unfair. The private sector does not get these perks yet most economists agree that the private sector is better at resource allocation than governments. This implies that government employees’ are not as efficient as the private sector would be in providing the same services. Because private sector employees are not immune to the vagaries of the world economy, neither should the public sector.
Laws should be brought forward that tie government pay and benefits to that of the private sector average – kind of like a cost of living adjustment (COLA).
11. Is a symbolic measure necessary? Yes, I think there is one that is absolutely necessary: The executive, legislative and judicial branches of government need to take a pay cut commensurate with the hit the ethanol farmers, the union laborers, the teachers, oil workers, federal employees and all other people are going to take. This is absolutely necessary to prove intent to the American people and to prove we’re all in this together. If they don’t do this, they’re not serious. If Obama or any politician wants the moral high ground, here it is.
A lot of this boils down to choosing not to protect an industry or entity that aids or directly benefits self-interest and that is, if you think about it, the essence of sacrifice. So be it big coal or big labor or farming or big government, if we protect everyone then we liberate no one.