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Economic Recovery Plan - Part III

[This is the third of a three-part series on getting the economy humming again. It will make more sense if you read Parts I and II before this one.]

OK, so the patient is alive. We've supported agriculture and manufacturing, gently nudging both toward more sustainable, resilient business models. Parts of the financial infrastructure have died and withered away. Cost cuts have been made through gains in efficiency (like turning down thermostats in favor of sweaters) and shared sacrifice (like having students clean and maintain their own schools, as part of their education). We have begun to root out the incredible fraud and waste in government spending that brought us here through a meticulous audit of that spending. Now what?

Only after sanity has been restored to the federal budget -- and not a moment before -- will economic stimulation in the form of government spending make sense. Printing money for the sake of printing money will not work. I don't care what Krugman says -- this cannot be the central and first priority of the plan. Look at it this way: If the government gave every citizen a billion dollars, the price of a bagel and coffee would go up to $474,000. The spending itself will not serve the purpose of stimulating the economy. How the money is spent invested is far more important than the level of spending itself. (More on this below)

The source of the money is also incredibly important. We cannot simply waste several hundred billion more of our grandchildren's money. It won't work. That is why the federal audit is so important. We need to get the federal books back in order so that the dollars we spend are actually worth something. Further to that, we can recover many billions -- I am sure -- by finding and prosecuting those who have profited through fraud over the past eight years. All that money we blew in Iraq went somewhere, and damn sure it didn't all go to the troops and their families. Tens of billions were essentially stolen; I would stake my life on it. Let's get that money back. Just as importantly, let's prosecute and punish to the full extent of the law those who committed the fraud. We need to strongly deter this sort of thing from happening in the future.

And, for God's sake, the very rich need to pay more in taxes. Isn't that obvious? I'm not going to argue post hoc ergo propter hoc, here, but Clinton got a badly out-of-balance budget back in balance by raising taxes on the wealthiest Americans. The result was a robust dollar and a consequently strong economy. Bush gave the richest a big gift in the form of tax cuts with catastrophic results for the federal budget and the economy as a whole. As the Clinton years show, nobody benefits more than the wealthy from a balanced budget and strong dollar. Don't borrow from your grandchildren when there are plenty of wealthy Americans who could make a tiny sacrifice in the form of slightly higher taxes.

If Obama and Congress put the cart before the horse and unleash hundreds of billions before reining in public spending and raising public revenue, I predict that the economic recovery efforts will be an unmitigated disaster. It will be akin to bringing a diabetic out of a coma, then putting him on a diet consisting mainly of high fructose corn syrup. Financial profligacy on the part of the federal government played a major role in bringing us to this point. More of the same will do nothing but worsen the situation.

Have I made myself clear?

Assuming the audit takes place and the rich are asked to pitch in, then we can talk about economic stimulus. How should we spend the money? Here's my reasoned opinion:

If we give the money to a bunch of worthless consulting firms and less-than-worthless financial shysters, we might as well burn it. At least if we burn it we'll get some heat out of it. This money needs to perform its stated goal of stimulating economic activity, defined as activity that creates wealth. In the interest of efficiency, I would leverage the expertise of existing government agencies by tasking them with very specific goals -- and demand that they account for every dime of the generous public allocations that will be made toward the achievement of those goals.

To wit:

  • The Small Business Administration would be asked to loan lots of money to upstarts having good business plans but lacking capital, with a particular focus on light manufacturers and companies involved with implementing small-scale energy projects (like construction companies who focus on installing solar power systems).
  • The Department of Energy would be tasked with putting solar panels on every roof. They would make small loans and grants to the companies and homeowners who are having the solar power systems installed. Make it so that not installing these systems is a totally stupid decision: you save money on your electricity bill -- forever -- and we pay for a good chunk of it.
  • Housing and Urban Development would be tasked with filling up the glut of vacant homes, perhaps by buying and renovating them, then re-selling them under terms favorable to the buyers.
  • Health and Human Services would get tens of billions to train new doctors and nurses. In return for their education, those doctors and nurses would spend a certain number of years working in publicly owned clinics. Part of the reason health care is so expensive in this country is that there is a shortage of providers. We need to work on that, especially with the Baby Boomers about to go geriatric.
  • Agriculture would focus on helping small family farmers keep their farms. This would involve soil replenishment and assistance toward moving to a sustainable model, NOT subsidies for more toxic petrochemical pesticides. The soil in our country is heavily depleted. This needs to be addressed urgently.
  • The Department of Education would get a huge infusion of funds to train teachers and build schools. They would also be asked to find ways to bring down the cost (and, quite frankly, raise the quality) of higher education.
  • The Department of the Interior would plant millions of trees and restore wetlands and waterways, using the healthy young backs of college students.
  • The Department of Defense would be given a top-to-bottom directive to find ways to cut costs, root out corruption, and raise efficiency. Soldiers, Sailors, Airmen, and Marines would be given pay raises -- and shady defense contractors who steal billions would be given long prison sentences.
  • The Department of Transportation would be asked to build mass transit systems and high-speed rail corridors. To help Detroit, they would also be maintaining roads, but driving might become more of a weekend luxury and less of a daily necessity.
  • The Department of Commerce would have a different mission. Instead of greasing the wheels of "free trade," they would be promoting fair trade, getting a better deal for foreign workers so that those folks wouldn't be so cheap compared to our American workers.
  • The Department of Labor would become actively involved in organizing unions. (Yeah I know that sounds radical...) Our workers need to be getting fair wages like they did back in the days when unions were strong. It's good for business, and it's the right thing to do.

I'm going to add to the above list, but it's a good start. The point is to use existing resources to carry out specific missions in every area of our economy, funding those missions generously after dealing with some of the incredible structural problems that brought us here.

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3 comments

Trade

Submitted by Pete Murphy (not verified) on Thu, 2009-01-29 09:40.

Regarding the subject of "fair trade," low wages in foreign countries actually have very little to do with the trade deficit. When our 2006 trade deficit in manufactured goods is broken down into per capita terms (that is, divided by the population of the nation in question), only seven of the top twenty deficits are with relatively poor nations. The top twenty is loaded with nations like Japan, Germany, Ireland and many others that are wealthy nations.

But 18 of the top 20 deficits are with nations that are much more densely populated than the U.S. This is because, beyond a certain population density, further increases in population begin to drive down per capita consumption. And falling per capita consumption, in the face of rising productivity, which always rises, inevitably yields rising unemployment and poverty. This makes overpopulated nations utterly dependent on manufacturing for export in order to sustain their bloated labor forces. They essentially become parasitic economies, preying on the markets and jobs of less densely populated nations.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)

Pete Murphy
Author, "Five Short Blasts"

Thanks for pointing this out

Submitted by charliehiphop on Thu, 2009-01-29 22:29.

low wages in foreign countries actually have very little to do with the trade deficit.

As Fonzie would have said, "Correctamundo!"

Canada is our number-one trading partner by a comfortable margin. China and Mexico round out the top three.

Saudi Arabia is not even in the top ten. Nor is Bangladesh.

Two of the top three have significantly lower wages than we do, on average. Many of the top ten (Germany, UK, France, Japan, Netherlands) have higher average wages than we do. ALL of those countries in parenthesis have higher population densities and higher wages than we do. The point is that we can have lucrative trading partnerships with countries that treat their workers well (and with countries that have higher population densities than the U.S.).

As for your whole "higher population density=parasite economy" thing, well, I disagree.

We need trade, but it needs to be fair.

U.S. government getting its financial house in order...

Submitted by charliehiphop on Fri, 2009-01-30 13:26.

... needs to be the first priority. I'm not the only one who thinks that, as it turns out.

As it is now, the "economic stimulus" will only make Americans poorer by causing the dollar to melt down completely. Search this site for "Dollar Bubble."

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