Shorter Lawrence Summers: everything that the administration whose policies I helped to create is doing is wrong
First, as the president has recognized, the budget cuts implicit in the sequester scheduled to begin in March should not be reduced but spread over time. The economy is already taking a significant hit from increases in payroll taxes. Sudden across-the-board slashing of military and civilian spending will hurt the economy and seriously damage military readiness.
Second, the president and Congress should fix a firm year-end deadline to address the international aspects of corporate tax reform. We are in the worst of all worlds: U.S. companies have nearly $2 trillion in cash sitting abroad because of tax burdens on bringing it home and the perception that relief may be on the way. Ideally, the international tax system should be reformed in a way that is revenue-neutral but increases the attractiveness of bringing foreign profits home. This would be accomplished by replacing the current high rate of tax levied only on repatriated profits with a much lower tax levied on all global profits. If such reform is not going to happen, this should be clarified so business does not keep planning for an amnesty that will not come.
Third, no American, regardless of his or her ideology, should be satisfied with the way the nation’s housing finance system is working. After a period when cheap mortgages were too available, the pendulum has swung too far; a lack of finance is holding the economy back. The clearest evidence is the growing number of lower- and middle-income families paying rents to the private-equity firms that own their homes at rates far above what a mortgage would cost.
Fannie Mae and Freddie Mac, the government-sponsored housing enterprises, have historically provided support to the mortgage market in difficult times. It is high time they be forced to step up and support would-be lenders. Ultimately, government support for owner-occupied housing should be curtailed, but now is not the time.
Fourth, the transformation of the North American energy sector needs to be accelerated. This will have economic and environmental benefits. Those who will decide whether to approve the Keystone XL pipeline, which would run between the tar sands of western Canada and Nebraska, need to recognize that Canadian oil not flowing to the United States will probably flow to Asia, where it will be burned with fewer environmental protections.
I find these prescriptions have an eerie, otherworldly quality to them, as though the last four years had never taken place. Why is there a sequester? The President proposed it. Who wants to increase corporate income taxes? House Democrats. What did the Obama Administration do, during the two years in which Democrats not only held the White House but controlled both houses of Congress or the two years since then, about how the housing finance system works? What did Dr. Summers urge on him in that regard? Not much. What is the main barrier to expansion of the energy sector? The White House.
Don’t get me wrong. You can support the measures that Dr. Summers is urging or oppose them. However, as an old business partner of mine once said “I agree with what you say but I will deny to the death your right to say it.”