Tapping Our Economic Potential

Sometimes it’s hard to say you were wrong.  That seems to be the case for President Barack Obama when it comes to fixing the economic meltdown.  Understandably, his Administration misjudged the size of the financial catastrophe during the depths of the freefall.  Then, he presumed that making a compromise deal with the conservatives in his own party and with the Right Wing in the Republican Party on a stimulus bill would unify them, be enough to put Americans back to work—and more importantly, to pull the American economy back from the brink of extinction this winter.  It seems he was only one-third right.

Yes, we are no longer in free fall.  That’s a blessing.  But the tax-cut-ridden stimulus and relatively small measures taken to address the foreclosure tsunami at the beginning of the Obama Administration’s tenure have not restored our marketplace to anything resembling health and don’t look to be on the brink of doing so soon.  We could be in for continued months—or years— of crippling unemployment in an economy that continues to run in low gear, since the huge destruction of wealth that occurred during the real estate and banking meltdown will not be soon replaced.

So what to do?  The Obama Administration, and now the President himself in a Washington Post Op-Ed piece on Sunday, seem to think we should simply wait and try to enact his long-term proposals as envisioned prior to the meltdown.  We reform health care, enact education reforms to train the workers of the future, and we green the energy grid in the hopes that it will provide new employment and make for a healthier investment climate. 

Well, I’m for these planks in the Obama platform, but there’s a disconnect in the Administration’s thinking.  It seems that the President believes we can make the economy healthy again without first putting Americans back to work.  The President doesn’t address the wasted energy and drag on our recovery represented by allowing tens of millions of us to remain unemployed and underemployed.  Meanwhile, multinational business continues to look for the cheapest and most desperate labor forces on the planet to cut its costs.  This means that the U.S. could continue in a stagnant way, with jobs declining over the long-term, while capital moves to other regions where infrastructure is building up and where labor is still cheap.

One possible solution would be to put Americans to work while at the same time rebuilding our infrastructure for the long term.  It’s an idea that has been around for some time and has many backers among economists and in the business community.  For years, banker Felix Rohatyn and former Senator Warren Rudman have backed the creation of an Infrastructure Bank and the Obama Administration recently backed its creation in its 2009 budget proposal.  

But the kind of capital that a totally new infrastructure concept needs and which would make an enormous difference to the economy at this moment has not yet been put forward by the Administration (It has been supported by Senators Dodd and Hagel).  If the Administration were to back a program to rebuild America’s infrastructure with the capital and the vigor that the Eisenhower Administration put behind the Federal highway system or that the Kennedy Administration put behind the space program, we could transform the country quickly.  America’s aging and increasingly dangerous system of bridges, mass transportation, roadways, water projects, flood control systems, and waste treatment plants would be upgraded to meet the needs of the twenty-first century, employing millions in the process.  

What’s more interesting, an Infrastructure Bank would be authorized to multiply government funding by loaning money, or helping states and municipalities sell the bonds that raise money for appropriate projects.  This is a critical part of the concept, that the bank would be capable of leveraging federal funds, without resorting to enormously complex derivatives, to help government raise capital and spread the investments out over time.  It would help maximize the impact of federal funds.

An Infrastructure Bank would also help the Administration to meet the important challenge any huge spending project must contend with— oversight.  Presently, the hodgepodge of spending projects between cities, states, interstate entities, and the federal government on infrastructure projects lead inevitably to porkbarrel spending and to competing projects getting funding when only one project should go forward.  Having an Infrastructure Bank that would have to approve projects and would have a mandate to cut waste and duplication would help endure that federal money was well spent.  No Bridges to Nowhere!

While an Infrastructure Bank was starting up, the Obama Administration would be well advised to begin immediately preparing legislation to send funding to the states to help them overcome budget deficits and continue their infrastructure projects, while meeting their obligations to taxpayers in the midst of this Great Recession.  It will take some time to get the Infrastructure Bank set up and for it to begin taking the lead on projects around the country, but that’s no reason to let the economy founder until it is complete.  We can put America again at the forefront of the world economy, but we can only do it if we are willing to keep making an investment in our future and in the welfare of our people, not just in our mightiest financial institutions.

Perhaps the Administration doesn’t need to say it was wrong in order to make things right.  But it does need to adjust and to do so quickly.  Supporting new infrastructure efforts while aiding the states will show the Administration’s seriousness and account for our need to address the future— and the present.

(Bill Kavanagh cross-posts at Buck Naked Politics.)

Comments

[Richard]

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