It’s one thing to complain about the economy – anyone can do that. But what should be done to fix it? Longtime readers know that I believe that our economic situation is a Managed Depression and that only a fundamental restructuring will end it. This is my Six Point Plan to do exactly that. It describes action by the Federal Government, which is to say that it is a political platform – meaning it is incomplete and taken from a certain perspective. If you have questions, please follow the links.
Generational Shift [Short Term]: The best way to create jobs immediately is a one-time program allowing workers over a certain age to retire with full Social Security benefits and access to any retirement savings such as a 401k tax-free. This would turn the economy over to the next generation with their different skills and energy – and currently very high unemployment.
The cost of this program would be $48B per year or about $240B over 5 years, but most of that cost might be saved through reduced unemployment benefits.
Implement Simpson-Bowles Framework [Medium Term]: Congress must find ways to manage the budget, which is what the framework proposed by Simpson-Bowles is all about. This is important to the general economy in part because it would instill greater confidence but mostly because the centerpiece of Simpson-Bowles is dramatic tax simplification. It also calls for a reduction in military spending, which would free up money for other critical spending that has more potential to stimulate the economy (see: Infrastructure, below).
Reduce Overhead per Employee [Medium Term]: Wages paid are not the cost of workers – they also carry overhead costs that include health care, vacation, sick pay, pensions, training costs, recruitment, and 7.62% FICA tax. Every HR department is overhead needed to manage employees. The exact cost of this overhead per employee is not known, but small businesses seem to run 30-40% and larger companies, especially manufacturing, 60% and more – GM used 105%. It appears to average around 50%. That means that for every worker making $20 an hour or about $40k per year the cost to the company is actually $60k. A national initiative to quantify the overhead per employee, analyze sources, and then reduce it by changing practices should have a target of reducing overhead by a third. If this amount were split between corpoarate profits and hiring more workers there would be no unemployment.
Security Transparency [Medium Term]: Many obscure securities are not traded in public. Precise figures on holdings are hard to come by as well, particularly with Credit Default Swaps (CDS). This network of shady investments has made risk management difficult, threatening long term stability in finance and diverts money away from investment in more tangible companies. The simplest regulation of all is to require that they be traded openly and reported – and that all finance companies be a part of an insurance pool modeled after the FDIC. This won’t help the economy directly, but will improve investor confidence and possibly redirect investment.
Challenge Grants [Long Term]: Our economy will not transform until we have a handle on our balance of trade, and the single biggest part of that imbalance is our energy imports. A series of Challenge Grants to develop key technologies that will bring us first energy independence and then sustainable energy is critical to our long term economic health. The same mechanisms might also be useful in transforming health care, reducing overhead per emplyee. A tremendous amount can be done in five years with just a few billion dollars through challenge grants, at least in areas where technology is important.
Infrastructure Investment [Long Term]: The US has a 1-2 trillion dollar deficit in infrastructure, meaning that we need to invest a lot more to get our roads, rails, pipes, dams, and so on up to “good” condition. Exactly how this would be paid for is unclear, given that this is typically either a state cost or something shared 50-50 with the feds – and states are nearly tapped out. But an investment of a trillion dollars over 5 years would provide some jobs in the short term but, more importantly, give us an opportunity to transform key parts of our economy that include transportation. This is extremely expensive but essential. A solid method of tackling this deficit must be developed and implemented.
That is my Six Point Plan to transform the economy. It contains job creation in the short term, growth and reform in the medium term, and long term fundamental transformation. But it’s far from a complete list of all the good ideas.
I’d like to know your ideas for transforming our economy and getting out of the Managed Depression – please share them in the comments, and thank you for sending this out to your friends!