Thursday, February 05, 2009

Obamanomics

Barack Obama is inheriting the most challenging circumstances of any president since FDR. The United States is engaged in two major land wars, it is confronting increasing ecological challenges as its infrastructure crumbles, and it is the midst of a global financial meltdown. Such is the legacy of George W. Bush.

The task Obama faces is monumental. His diagnosis and prescription for America's economic ills, which he outlines in a Washington Post Op-Ed, "The Action America Needs," strike me as commmonsensical and fundamentally sound. In short, he must retool the U.S. economy for the 21st century. To grasp what Obama must do it is important to understand what America failed to do under the previous administration, which will almost certainly go down as one the worst in our country's history.

For the past thirty years, Washington has largely been enthralled by market fundamentalism. This is the superstition that economic, social, and environmental decisions are best left to a rarified entity known as the "free market." The dogma goes something like this: countless rational actors pursuing their self interest (as they buy and sell with each other) can generate a collective wisdom that no government or bureaucracy could ever hope to attain.

Unbridled faith in free markets was supposed to lead to economic equilibrium; instead it has brought the entire global economic system to the brink of collapse.

Unfettered free markets were supposed to allocate resources optimally, obviate the need for long-range planning, and inexorably expand our economic and political freedoms. Instead, a narrow segment of "financial wizards" enriched themselves, cannibalized their companies, banks, and other financial institutions, while leaving taxpayers to foot the bill for a huge government bailout necessary to keep the financial system from collapsing entirely. As a result, most Americans find themselves financially overextended and insecure.

For the past thirty years, we have had a system that privatized profits, but socialized risk. Not long ago, Wall Street was soaring. But much of the paper profits generated by the financial sector have proven to be a mirage. Wall Street was adept at making money out of money, so long as its customers didn't ask any too many questions about the complex financial instruments that were in fact cobbled together with sub-prime mortgages.

Herein lays the essence of America's current misfortune: making money out of money is not the same thing as making something real. As America's financial sector swelled its manufacturing base dwindled. The United States cannot be a prosperous country without making and selling the goods and services the world needs and wants. Enlisting America's best and brightest to repackage and sell debt was never a sustainable strategy for ensuring our nation's economic success.

The most promising new American growth industry will involve so-called "green jobs." Put simply, inventing and selling the next generation of energy sources and energy efficient technologies is America's best hope of transforming our economy and restoring the United States as the world's leading economic innovator.

Accomplishing this goal will require a new social compact, one that recognizes education, infrastructure, and healthcare as public goods that require sustained and substantial investment from taxpayers. For instance, soon after the United States embraced public education it rapidly eclipsed its European rivals economically. Likewise, the G.I Bill paid enormous dividends for decades in terms of productivity and prosperity. Similarly, both Eisenhower's interstate highway program and the government initiative that led to the Internet demonstrate how far-sighted government policies can open up entire new economic vistas.

Universal single-payer healthcare is a matter of both moral and financial necessity. The current system is grossly inefficient on many levels. By design, private insurers seek to cover those that need healthcare the least and exclude those that need it the most. Therefore, taxpayers that pay for private health insurance also cough up tax dollars to pay for public clinics and emergency room visits by the uninsured. Once again, profits are privatized but risk is socialized.

Employers and employees are increasingly burdened by the current system. After all, the high-cost of mandated health insurance discourages companies from adding and retaining employees. And fear of losing employer-sponsored health insurance discourages many workers from seeking more satisfying and rewarding work. In short, universal healthcare can deliver better care to more people, thus leading to a healthier and more productive workforce.

The Obama administration has opportunity to tie short-term stimulus measures to longer-term investments along the lines I've outlined. Most Republicans remain wedded to the discredited mindset that got us into this mess in the first place. For instance, Linda Chavez proposes giving every American a debit card, presumably so we can by a gas-guzzler or another plasma TV. However, if the last eight years have taught us anything it is that an economy predicated on perpetual consumerism is a dead end.

The sagest economists I've read say that the United States can grow its way out of the economic mess the Bush administration has bequeathed us. However, to do so it will have to invest heavily in education, infrastructure, and healthcare, the things that will ultimately help America reinvent the economy. One thing is certain, pouring money into bailouts or consumer toys is not the way create the prosperity of tomorrow.

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