Do Differently

I found a pair of op-eds today, each of which parallels some of the things I’ve been saying around here for some time, that suggest that the notion that our policy choices aren’t limited to more stimulus or less stimulus, more regulation or less regulation, is one whose time has come. Matt Miller, writing in the Washington Post, while defending the bailout and fiscal stimulus policies of the Obama Administration as necessary, also condemns them as wrong-headed:

Remember (if you’re a certain age) that great Saturday Night Live ad parody in which Chevy Chase chirps to spatting spouses Gilda Radner and Dan Aykroyd that “New Shimmer is a floor wax AND a dessert topping!”?

Well, the $26 billion state relief package just passed on party-line votes is the same kind of zany paradox: a crucial step to ease today’s economic pain AND a dastardly bailout. That’s right, kids — it’s indispensable AND indefensible!

He goes on to describe the anti-stimulus effects of cut-backs in state and local government spending and calls for requiring states to restructure their budgets, using the bailouts of GM and Chrysler as his model:

The auto emergency offers the right template — because the industry was forced to restructure as a condition of its bailout. The states haven’t been. Borrowing from China to skirt devastating state layoffs is one thing. But borrowing from China to keep runaway Medicaid programs in New York and California free from fundamental overhaul, and gargantuan unfunded public pensions untouched, seems mad. In California, more money is spent each year on compensation and pensions for 70,000 prison employees than on the state’s entire higher education system!

closing with several proposals I find quite appealing:

The tragedy is that it is not beyond the mind of man to structure a state bailout that does what we need. States would be eligible for far more near-term relief than Democrats just offered in direct proportion to the amount they reduce their long-term unfunded liabilities in pensions and health care. It’s just that our current byzantine tangle of interest groups, campaign funding and media habits, mixed with both political parties’ fears and ambitions, conspire to ban even the expression of this kind of idea, let alone its enactment. It’s another depressing example of how unequal our political institutions have become to the substantive challenges we face.

Nor would it be hard to design an ambitious new stimulus that goes beyond these state bailouts that could make a big difference fast. As I’ve argued before, we could enact big payroll and corporate tax cuts now, offset (and then some) by new energy and consumption taxes passed today but taking effect only once unemployment is below, say, 6 percent. This tax swap, which could appeal to liberals and conservatives, would provide a much-needed jolt to business’s “animal spirits” while assuring bond markets we’re serious about getting our house in order in due course.

To my eye he’s almost there. Where he falls short is that there was never a successful strategy for bailing out GM and Chrysler any more than there was one for Napoleon’s invasion of Russia. The further he advanced, the greater the losses that were sustained. A successful strategy for GM and Chrysler would have been one for which the objective was a soft landing for companies that faced inevitable decline rather than one that tried to ensure their continuing survival. Consider automobile production in the United States. It’s clear from it that “Cash for Clunkers” was a strategic error if its intent was helping U. S. automakers. But it was also an error from the point-of-view of auto production in the United States regardless of who produces the cars.

Many of the engines and other components of these allegedly U. S.-produced cars were produced in Japan, Korea, and elsewhere and merely assembled here, a job that doesn’t employ the numbers in the United States that auto production once did, doesn’t require as much skill, and shouldn’t be compensated as highly as these jobs used to be. Further China, India, and other countries have enormous automobile productive capacity and are slavering to get into the U. S. market. There is very little future or automobile production in the United States, particularly in the low end of the market, and at any end of the market it will need to be done at a nearly zero cost of labor.

Richard Florida’s article in The New Republic comes even more tantalizingly close to the truth:

Our transition from a Fordist mass production economy, based on the assembly line, to a knowledge economy, in which the driving force is creativity and technological innovation, has been under way for some time; the evidence can be seen in the physical decline of the old manufacturing cities and the boom in high-tech centers like Silicon Valley, government boomtowns like Washington DC, and college towns from Boulder to Ann Arbor. Between 1980 and 2006, the U.S. economy added some 20 million new jobs in its creative, professional, and knowledge sectors. Even today, unemployment in this sector of the economy has remained relatively low, and according to Bureau of Labor Statistics projections, is likely to add another seven million jobs in the next decade. By contrast, the manufacturing sector added only one million jobs from 1980 to 2006, and, according to the BLS, will lose 1.2 million by 2020.

This is the future towards which our post-industrial economy is already trending—and government should be proposing policies that will help to create a new geography and a new way of life to sustain and support it. But that doesn’t mean we need a centralized public bureaucracy to speed the process of change. As it happens, innovation occurs not only within big companies, major laboratories, and research universities, but also on the margins of business and academia. John Seely Brown, the former director of Xerox’s storied Palo Alto Research Center (PARC), has observed that many, if not most, of today’s high-tech innovations are products of the open-ended, collaborative explorations of hackers. Steve Jobs didn’t invent the PC; he saw its components at work at PARC, realized their potential, and put the pieces together.

He goes on to explain how too much energy and resource are being devoted to propping up the no longer functional approaches of the past and too much encumbrance is being placed in the way of the technologies and strategies that will bring the growth of the future. He utilizes the example of high-speed rail.

In the United States the great barrier to high-speed rail is not the availability of the equipment but the condition of the roadbeds. I would have much preferred that serious infrastructure investment had been devoted to improving our late 19th century to mid-20th century roadbeds rather than refurbishing untold miles of interstate. But that’s where thinking of the future as merely more of the past leads.

We’ve got to stop thinking about what we do more of or what we do less of and start thinking about what we should do differently. Do we really need more teachers and more police officers? Or should we be teaching differently and enforcing the law differently? Rather than endless debates about higher or lower marginal tax rates why not consider what we really need to be funding and what funding mechanisms will ensure that we have what we need?