Former Federal Reserve governor Kevin Warsh and former Florida govenor Jeb Bush have taken to the opinion page of the Wall Street Journal to encourage a pro-growth “grand strategy” for the U. S.:
Policy makers should cease the barrage of ad hoc, short-term policy initiatives. Is increased federal spending across government agencies a grand strategy? How about checks in the mail to spur spending? Cash for clunkers to move auto inventories? Fast trains and faster Internet? Mortgage modification programs and fleeting tax credits to re-stoke home ownership?
Inducing consumers to do today what they would otherwise do tomorrow is hardly a grand strategy. Hundreds of billions in “stimulus” spending has stimulated little but more debt. Forty-eight months have passed since the onset of the financial crisis, 26 months since the recession technically ended. Yet job creation remains remarkably weak, and markets deeply uneasy.
We can’t go on like this.
Among the measures they propose are:
- Allowing large banks to fail.
- Reforming Social Security.
- Simplify the tax code (lower rates, eliminate deductions)
- Stabilizing the regulatory regime
- Ratify already negotiated free trade agreements
- Improve the educational system
- Re-industrialize
There’s also an oblique reference to the tactics used to bail out General Motors (“The growth strategy also demands an abiding respect for the rule of law”).
Some of those (#1, #5, #7) I agree with wholeheartedly. I’m skeptical of the vital need to reform Social Security (the greatest threat to the system’s viability right now is the prospect of a lengthy curtailing of FICA revenues) and baffled by their failure to mention the real dog in the manger, healthcare, explicitly. I think they’re far too short-sightedon their proposals for reforming the educational system. If I were king, I’d organize a cooperative of large states, say, New York, California, Florida, Texas, and Illinois, have them each close down one floundering state university, and use the money to create a high-quality, fully accredited, up-to-date online university, available to all comers at a nominal cost. I remain skeptical of the dollars and cents value of most higher education but I think it’s worth putting to the test and this would certainly do it.
I’ve complained about the short-sighted, closed-minded, claustrophobic character of the palette of policies in the common discourse before both directly and obliquely. There are any number of policies that don’t require tax increases or spending increases to implement that would help get us out of the ditch:
- Ratify already-negotiated free trade deals
- Eliminate Davis-Bacon requirements.
- Rationalize intellectual property law
- Streamline and normalize state and local regulations
- Stop subsidizing offshoring.
- Confront Chinese mercantilism
And that’s just off the top of my head. There are probably thousands of such measures.
I think that Messrs. Warsh and Bush may be overestimating the prospects for growth and what growth will do for us. First, I would claim that there are no prospects whatever for longterm growth over 3% real increases in GDP per year and 2% real increases in income. As I’ve previously documented here those are the longterm trends in the United States going back to the foundings of the Republic, growth in other developed economies is slower, and we haven’t experienced sustained growth at a faster rate than that for a very long time.
But, second, the level of growth that would be required to dig us out of the hole we’ve been digging for ourselves for the last 20 or 30 years is plainly too high.
Please point out a specific floundering state university. I’m not sure what that’s supposed to mean.
As for confronting Chinese merchantilism – I think you are underestimating the difficulties that would entail. For one thing, how are the elected officials going to fight their own constituencies that are benefitting from that merchantilism? Because the only constituencies that matter are those that give big bundles of money to the pols, and if they wanted this merchantilism stopped, they would have demanded it ages ago. Therefore we have to assume they want it.
Icepick: Recent story about economic problems at Eastern Illinois University might be one example:
http://jg-tc.com/news/article_5c9cc03e-bfde-11e0-9f0e-001cc4c03286.html
I was a little suprised to read about enrollment problems in this type of economy, but the factors mentioned in the article are probably also applicable to other regional public universities.
The article is a bit long, here’s the main bit:
“Hudson said the ongoing economic downturn in Illinois has resulted in EIU’s enrollment declining, adding that he has never seen this level of challenge to EIU’s enrollment during his 10 years as housing director.
More underclassmen are choosing to start their academic careers at nearby community colleges and live at home instead of state universities, Hudson said. He added that layoffs at schools throughout Illinois have discouraged students form pursuing a career in education, a specialty at EIU.
EIU continues to offer some of the best tuition and housing rates in Illinois but it and other state universities are facing increased competition from out-of-state universities and from online colleges for new students, Hudson said.”
Thanks, PD. All we hear about in FLorida is booming enrollments. Florida is still experiencing the effects of the huge influx of people that started in 1946. The last I checked the only enrollment problems were that too many students were getting packed in like sardines. But then I only really hear about UCF here in town, FSU and UF.
California
Chicago city colleges
SUNY Cortland
general
Business schools
Some interesting links. I was not familiar with the Chicago city colleges; I guess a 7 percent graduation rate can do that.
Not being familiar with all of these schools, it appears though that:
There are a number of elite universities that are in high demand and will continue to increase tuition (coupled with merit waivers), posing challenges to social equality.
There are some value universities that are doing well in this economy, primarily private. IIRC Loyola in Chicago had one of the highest increases in application for admissions last year in Illinois. I hope I don’t offend anybody by suggesting its not an elite institution, but it is one that seems like high quality for the buck.
There are a number of public schools that used to be in the value area, but either have lost revenue support, have regional issues, or other factors, which are posing real challenges to them. People are deciding that a community college is comparatively better value.
Anything I missed?
My general reaction to the problems that small, regional state colleges are having is that Americans are keen, maybe intuitive, students of markets. Med school pays off. Consequently, every med school in the country has a waiting list. They thought that law school paid off. If they’d grown up looking at the practice of law from the inside as I did, they’d have known better. The top 15 grads of the top 15 law schools do very well indeed. The rest of the practice is increasingly a struggle. However, the perception was enough and the number of law schools and sizes of classes blossomed. I suspect that Harvard, Yale, Northwestern, U. of Chicago, Stanford law and the rest of the elite 15 are doing just fine.
Elite schools (and schools that are fun to attend) are undoubtedly doing just fine. Third tier local and regional school? Not so much.
Getting back to the topic of how much growth, I’d say we’d need, at a bare minimum at least 2x what we’ve seen in the last 20-30 years. I’d put it at 5-7% growth in GDP. Even then I think it would merely allow us to got dig the hole deeper…until politicians got around to spending the increased tax revenues on thing other than reducing debt and/or running up the deficit promising voters everything under the sun.