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!
It finally came together, and it looks good. I think this has something for everyone and I can’t see that it’s either democrat or republican. It also doesn’t cost a lot other than the infrastructure part but everyone knows we have to do that.
Great job, thanks!
I was wondering what to compare this to when it hit me – I don’t think anyone else has a plan for restructuring the economy. So this one is the best! 🙂
I really like this a lot because I think it hits all the areas we know we need to work on and ties them together. Thanks!
A good plan, but I can think of two things you left out.
The first is universal health care, which would do more to reduce the overhead per employee than anything as well as make it easier to change jobs. The other is retraining programs or credits that would make it easier for people to get new skills and change careers.
Other than that I like what you have here and hope it gets into circulation. I agree that we don’t talk about the need for restructuring nearly enough and putting this out there helps a lot by itself. Excellent work.
Socialized medicine – there, I said it! – is what we need more than anything else. The HMO establishment is sucking the life out of the economy at a cost more than double that of any other nation and delivering inferior care on top of it. There is no wonder we are losing our edge to the rest of the world when they have true socialized medicine and we don’t.
This plan is good as far as it goes and I can see how the items here are long overdue, but it does not address the rot at the core.
Jim, Anna, thanks!
Dale: I left those two out largely because they are talked about by other people, but that’s not to say that they shouldn’t be done. They are also pretty expensive – but worth it as an investment in our most important resource, our talent. I almost didn’t include infrastructure in the list for the same reason but I think it’s important to say this as much as possible!
I’m sure there are other things that the Federal Government can and should do, but these struck me as the most obvious. We have two additions already – any more?
Nothing more, I would second what Dale said, We’re the only “first world” nation w/o universal health care and that hurts us competitively as well as the overall heath of our population (effecting business ie: lost hours because of avoidable illnesses).
Generational shift makes a ton of sense in that it could substantially reduce employee wage costs and potentially overhead, too; however, there are training concerns and other concerns with work ethic and expectations that may arise.
I will have to “bone-up” on Simpson-Bowles before I can intelligently add to the discussion on that point beyond my agreement that military spending must be curtailed. We could easily shift what we spend on military to deal with infrastructure problems (thank goodness we haven’t regressed to the point of rolling blackouts, yet!).
I know enough about securities to know what I don’t know, which is to say that I am not familiar enough with the specifics here to comment; however, transparency is always a positive!
The idea of the challenge grants brought up in your previous post and addressed again here seems like the most original and significant contribution to current policy and practice. This is an idea that needs to be taken further.
As for infrastructure investment, it is critical to continued development. High-speed rail and improved public transportation are two areas that will help to decrease dependence on foreign oil and will open more employment opportunities to the population. As for funding, see curtailing and redirecting military spending!
Great thoughts, Mr. Hare.
Kevin: Thanks! Infrastructure improvements do have the ability to transform the economy far more than anything else, but it takes a lot of time. Then again, we could use the jobs right now – so the sooner we get started the better.
Everyone: I do agree that the most important thing is to talk about Restructuring – why we need it, what it might look like, how it might happen, etc. I know it’s scary and offering some relatively cheap ideas to get it started is my li’l way of getting people beyond the scary “D” word (Depression! >shudder!< ) and towards a real future. It's not hat hard – it takes thought and commitment to something a little bit more than ourselves for once.
But it is the future of our nation that is at stake – nothing less.
Reading Nelson Rockeller’s biography. How are you going to expand foreign markets, perhaps lowering overhead is one way. How are we going to escape war with china as we compete over oil fields and other resources?
Dan: This does kinda smell like a Rockefeller Republican plan, doesn’t it? Oh well. I freely admit that if was President I’d have a lot more on health care and retraining, as has been suggested here.
I don’t see us competing with China at all, which is why Challenge Grants that help us to come up with new ways to be 1) Energy independent, and then 2) Sustainable are absolutely critical. I think we have no more than 10 years before some kind of crisis hits – if not with China, then at least with major price increases as the Developing World keeps on developing.
Since this current computer doesn’t have a pop up blocker you will be comforted to know you somehow got linked to Kim kardishan’s new perfume. Sometimews when I type in a somewhat academic subject the computer takes a long time to come up with something to ad sale. Anyways it looks like the MN political class will some month pass a band aid budget. Rereading bits of marx lately (in the form of continantal vs. anglo philosophy. He states that much of public policy is merely a band aid in the power relations between capital and the wage employee. So it seems you may be
(Sorry my computer skills are again lacking) talkin about something bigger. Now for example what would be an adjustment to property laws that both parties might be willing to agree on hoping that their side gets the better half of the bargain. Once again I go back to some old labor negotiations where labor gave up some of its ownership in return for higher wages ( a mistake in my view) Since I am rambling it is truly impressive how much control the Rockeller brothers trust fune exerted.
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I think I see why you left off health care, since this is your plan, but it is part of the big picture. This is an excellent summary of a lot of little things that add up to a much bigger picture which is what I guess we have to do now.
Hey Erik translate this, is portuguese, so easy:
TRÊS ANOS DE CRISE or rediscovering the weel
Três anos após a crise americana das hipotecas., que acabou contaminando a economia global, percebe-se nitidamente que a estratégia utilizada pelo presidente Obama de socorrer os grandes conglomerados e bancos especialmente, com polpudos aportes financeiros, está muito longe de ter sido uma solução definitiva, mas apenas um mero paliativo, sujeito a repiques, que se e quando vierem, serão avassaladores e de conseqüências de difícil previsão.
Estatizar dívidas de particulares, causadas por má ou até fraudulenta gestão, está longe de ser a chave para deslindar qualquer problema. O Tesouro seja ele americano ou do Sri Lanka, trabalha com limites contábeis muito estreitos, que não podem ser alargados impunemente, como fez o sr.Obama, aumentando sobremaneira o déficit público.
Em julho os americanos terão que negociar papagaios da ordem de um trilhão e quatrocentos bilhões de dólares, quase o equivalente à dívida pública brasileira, esta tocada para frente à custa da armadilha dos juros altos.
Armadilha mortal, que não pode ser usada pelo presidente americano, pois o déficit público atingiu quatorze trilhões de dólares, estando perigosamente próximo do legalmente aceitável.
Obama apostou na política de que é possível perder os dedos, sem perder os anéis. Será viável? Leia a análise feita em artigo escrito em 2.009 agora reprisado por sua atualidade.
REINVENTANDO A RODA DA ECONOMIA
A grande dificuldade que o mundo atravessa não só no aspecto econômico, mas também no social e político é justamente a ausência de imaginação criadora, que traga soluções que fujam dos padrões tradicionais.
A queda do muro de Berlim e do império soviético, sem dúvida uma revolução no bom sentido, teve um aspecto negativo, que levará muito tempo para ser superado, qual seja o do sufocamento de novas idéias, que representariam novas soluções para velhos problemas. A divisão entre Leste e Oeste produzia uma saudável competição de parte-a-parte, responsável pelo surgimento de novas filosofias econômico-políticas e grandes avanços tecnológicos, de que a conquista espacial é um exemplo.
Que saudades da guerra fria!
Uma prova de que a imaginação criadora anda em falta, na crise atual a maioria dos economistas e teóricos agora são keynesianos (John Maynard Keynes, pensador inglês que a rigor defendia o intervencionismo estatal na regulação do mercado, num meio termo entre o capitalismo e o marxismo como teoria econômica) defensores intransigentes da intervenção do Estado na economia, principalmente para salvar os grandes conglomerados e os bancos.
Muitos dos que hoje se dizem keynesianos há bem pouco tempo atrás eram neo-liberais de carteirinha, que defendiam um Estado mínimo e a crise se deve muito a eles.
Se o Estado tivesse cumprido seu papel de indutor e regulador do sistema financeiro, as subprimes das hipotecas imobiliárias não teriam existido.
A intervenção estatal teria que ser no antes e não agora no depois. Como estão fazendo Estados Unidos, Canadá e quase toda Europa, socorrendo bancos, comércio e indústria com monstruosos aportes financeiros, estão colaborando para realimentar a crise.
Complexo, não. Expliquemos. A estratégia até agora adotada, aparentemente keynesiana, é na sua essência neo-liberal, pois realimenta os dragões da especulação.
Quando um governo anuncia corte na taxa de juros, quando intervém na economia com pacotes salvadores, que beneficiam bancos, comércio e indústria, estas medidas tem fôlego curto, pois apenas financiam o consumo, descuidando dos consumidores, que para os neo-liberais são apenas números estatísticos.
A roda da economia, com seu eixo já excessivamente gasto, continua girando para o mesmo lado. Se a cada número anunciado de corte nas taxas básicas de juros, o governo seguisse os discípulos de Keynes e decretasse um aumento proporcional na remuneração da poupança interna, talvez, então, tivéssemos consumidores ávidos em gastar e clientes bancários com muito para movimentar.
E estaria reinventada a roda.
terça-feira, 03 de fevereiro de 2.009.
Luiz Bosco Sardinha
Thank you, Luiz, for your comments and support! I enjoy your work very much and encourage people to read your blog (follow the link on his name!).
I do not speak Portuguese but enjoy input from the great nation of Brasil. It is very much your turn to lecture us on how to properly run an economy and I hope you enjoy it – we are due for the change! 🙂
What Luiz says here is that we are re-inventing the wheel when it comes to properly running a national economy. Everything that should be done is known and rather fundamental. But we reject all of that and think we can do things our own way. He is right. We are behaving very badly and the whole world will suffer for it! Stick the text into google translate and you’ll get pretty close.
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I wonder how you can get this to be more visible because there are some great ideas here that I have not heard anywhere else.
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Do you have figures to back up your generaltiomal shift idea? This sounds like it may have but I haven’t checked the numbers. I assume you have and I would appreciate it if you would list them.
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April: Sorry I was slow to respond – here’s an article from a source I don’t usually use but I think is right on (and has the BLS source)
I want to add two ideas to this list that I have been convinced are important since I put this together.
The first is increased support for education and retraining. I think that this will help in the medium term. Workers have to learn new skills and I think a Federal program that identifies obvious skill gaps and pays tuition (perhaps even 100% upon graduation) would be beneficial. There does seem to be a component of “Structural Unemployment” in this economic transformation that we have to tackle:
The other important thing that needs to be done is that the Federal Reserve has to stop allowing member banks to park large amounts of money, with interest. At the very least, the roughly $1.5T in deposits should no longer gain interest (which is to say, they can be marked to the 3 month TBill, which is currently about zero interest). The Fed should also look at a cap of total deposits by any member bank.
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