What should the US do in 2012 to address its tough economic problems? We will hear many answers to this question through this presidential election year. Many will be based on ideological conviction and/or political opportunism. They will likely not lead to any kind of workable solutions. But some will be more pragmatic and might perhaps stand a chance.
The January 1 Sunday Business section of the NY Times asked six economists to give their best advice for 2012 on a variety of issues. Among them was Christina Romer, Professor of Economics at UC Berkeley and former chair of President Obama’s Council of Economic Advisors. Professor Romer wrote an excellent article, - Two Big Problems, Two Ready Solutions - offering practical advice for the US economy in 2012.
“The United States faces two daunting economic problems: an unsustainable long-run budget deficit and persistent high unemployment,” she writes in the opening paragraph. “Both demand aggressive action in the form of fiscal policy. Waiting until after the November elections, as seems likely, would be irresponsible. It is also unnecessary, since there are plans to address both problems that should command bipartisan support.”
President Obama has neither embraced nor rejected the Commission’s recommendations. The final report was voted down by seven of its eighteen members, - 4 Democrats and 3 Republicans, and thus failed to achieve the required fourteen votes supermajority. Perhaps the President thought that he could craft a better deal in private negotiations with Republican leaders.
But, it has not worked out that way, as evidenced by last summer’s debt-ceiling crisis, and the subsequent inability of the bipartisan Congressional Supercommittee to reach any kind of agreement. A number of Obama’s historical allies feel that the President missed a major opportunity by not embracing the Simpson-Bowles blueprint when it was first released a year ago. For example, on November 12, Warren Buffet said in a CNBC interview:
“I think what happened with Simpson-Bowles was an absolute tragedy. I mean here are two extremely high-grade people. They have somewhat different ideas about government but they're smart. They're decent. They’ve got good senses of humor, too. They're good at working with people. They work like a devil for ten months or something like that. They compromise. They bring in people as far apart as Durbin and Coburn to get them to sign on and then they're totally ignored. I think that's a travesty.”
And, in his November 22 NY Times OpEd column, Tom Friedman wrote:
“I believe the best way for Obama to [put the country on a sustainable economic recovery path] is by declaring today that he made a mistake in spurning his own deficit reduction commission, chaired by Erskine Bowles and Alan Simpson, and is now adopting Simpson-Bowles - which already has Republican and Democratic support - as his long-term fiscal plan to be phased in after a near-term stimulus. If he did that, he would win politically and create a national consensus that would trump his opponents, right and left.”
“The Bowles-Simpson Commision hashed out a sensible plan of spending cuts, entitlement program reforms and revenue increases that would shave $4 trillion off the deficit over the next decade,” writes Professor Romer. “It shares the pain of needed deficit reduction, while protecting the most vulnerable and maintaining investments in our future productivity. Congress should take up the commission’s recommendation the first day it returns in January.”
“But we can’t focus on the deficit alone,” she adds. “Persistent unemployment is destroying the lives and wasting the talents of more than 13 million Americans. Worse, the longer that people remain out of work, the more likely they are to suffer a permanent loss of skills and withdraw from the labor force.”
She believes that a fiscal stimulus is the best way to raise employment and lower joblessness. Her advice is that the federal government should give substantial funds to state and local governments for public investments.
“Tell them that the money has to be used for either physical infrastructure like roads, bridges and airports, or for human infrastructure like education, job training and scientific research. Then let the states, cities and towns figure out what would work best for their citizens.”
This is once more, highly sensible, pragmatic advice. It addresses our persistent high unemployment problem, the longest such period since the Great Depression. It advocates a kind of New Federalism approach, with Washington providing grants to state and local governments and monitoring their outcomes, while giving them broad discretion on how the programas are implemented. And, it proposes a way of putting people to work in the near term while leaving us with something of value for the long term - improvements to our physical and human infrastructures.
In my experience, the hardest step in tackling very complex problems is finding a way to get going. It is near impossible to arrive at a solution that satisfies everybody on day one. But, if one is able to arrive at a good-enough consensus that makes it possible to start working on the problems, the solution is likely to evolve and get better over time.
That has been my experience with a number of the initiatives I have been involved with in the private sector, from the Internet and e-business to digital money and payments. It is why I have supported the 2010 health care reform bill despite its considerable imperfections. Once you have a base to work on, you can start learning and improving your initial solution. The alternative is to keep arguing while doing nothing.
“Ronald Reagan once said,” writes Christina Romer in her concluding paragraph, “‘There are simple answers - there just are not easy ones.’ What needs to happen on fiscal policy is relatively straightforward. The hard part is getting politicians to do it.”