A brief foray into starting to think through the budget and macroeconomic questions. From Brad Delong:
President Obama asks if you would write up a two-page memo for his political staff telling them what the ideal macroeconomic fiscal policy over the next several years for him and the congress to undertake to deal with the aftermath of the recession would be if there were no political constraints on the federal government's budget. He tells you to keep it to at most 400 words--that is all that they will read. He tells you that most of the audience for this memo took courses like Econ 1 and IAS 107 in the past, but that they have forgotten all of it. You can use equations and graphs if you wish, but they had better be understandable to somebody who knows no economics. He also asks you to forecast what will happen to the growth of the American economy over the next 25 years if we do not recover from the downturn but, like Japan after 1990, remain in a depressed state with low investment at its current share of GDP for a generation. Be sure, he tells you, to outline both the risks from adopting the policy you recommend and the risks from not adopting the policy you recommend but continuing with business as usual.
The ideal macroecomoic policy wihtout political constraints would include the following:
1. Reform bankruptcy laws to protect consumers rather than reckless creditors.
Outcome if issue not addressed: Consumers unable to recover from bad economic choices and erosion of economic position of working and middle class
2. Create a public banking option to provide basic banking services to Americans without having to only choose between rapacious private banks and a check cashing industry that is thinly disguised loan sharking.
Outcome if issue not addressed: Banks continue to engage in predatory behaviors and fail American consumers in meeting their actual banking needs.
3. A carbon tax aimed at incentivizing the movement of the american economy towards a different energy framework. Revenue to to towards debt reduction and to fund an infrastrcuture fund and infrastructure bank.
Outcome if issue not addressed: Accelerating climate change and the erosion of the American economy as energy costs and oil shocks reduce its efficiency and competitiveness. American economic growth non-existant as competitors develop sustainable energy instrastructures.
4. A strategic review of U.S. defense policy with the express goal of reducing the size of the defense budget and restructure U.S. military away from Cold War thinking to a more modern framework.
Outcome if issue not addressed: Diminishing resources directed at sustaining a military built to fight the cold war that does not build a military capable of defending American interests in the future.
5. End the Bush Tax Cuts, restore the Estate Tax, and change the tax code to lower corporate rates, create a tax bracket above 1 million with a much higher rate and mimimal deductions to force wealthy Americans to pay a fairer share of their income in taxes.
Outcome if issue not addressed. Not enough revenue to fund legitimate activities of Federal Government and the burden of paying for that government falling disproportionately on the Middle and working classes. Corporate tax rates should be consistent with other nations but devoid of the breaks that keep them from paying their fair share.
6. Increase the size of investment of the Federal government in science and technology research.
Outcome if issue not addressed: American technological edge will diminish over time. Pool of intellectual capital will be brain drained abroad if sufficient investment does not keep it here. American economy depends on innovation.
7. Real Net Neutrality
Outcome if issue not addressed: Net infrastructure becomes owned by a predatory cartel of companties and eliminates competition beyond that of small group of corporate players.
8. A G.I. Bill for all veterans and any young Americans willing to committ to some kind of public service.
Outcome if issue not addresed. Failure of American educational institutions outside of narrow range of quality public and private institutions to train a competitive workforce with a wide range of skills. Currently limited ability to retrain workers as ever faster economic pace eliminates whole industries and worker skill sets rendereds obsolete. Human Capital most important resource, most underdeveloped.