Anatole France
Econ 101b: Fall 2006: November 21: Unemployment and the NAIRU

What To Do

Stefan Geens discovers the Pony Principle:

He applies it to Roger Altman and Alan Blinder, who he says labor in vain.

I agree that Altman and Blinder labor in vain, but I join them. They have good ideas.

Pessimism of the intellect, optimism of the will!

RGE - Altman and Blinder: Can't we all just get along?: Writing in the WSJ today, Roger Altman and Alan Blinder engage in admirable but wishful thinking about what Congress could do to repair the US economy in the next few years.

They propose a bipartisan effort to raise the minimum wage, boost the Earned Income Tax Credit, move towards universal health insurance, fix social security, reduce the US' dependence on oil and gas, provide better education and training, and also bring back pay-as-you-go financing.

Would you like a pony with that?

We fully realize that only a few of these policies can be promulgated right now. But a year hence, the policy window will have closed tight and the (presidential) political window will be wide open. So time is short. After watching the recent election results, we'd hate to be an empty-handed politician facing the voters in 2008.

Here's what's more likely to happen, unfortunately: Free trade will suffer, dismantled by populist politicians who think international trade is a mercantilist proposition. And the political window may already be closing, as the race for the White House starts earlier than ever.

The Economic Front - [I]n recent decades the fruits of economic growth have not been widely shared, and we Americans have been growing apart. Notably, the middle class has fallen much further behind the rich; and recently, real wages have lagged behind productivity while profits have soared.... The problem is both deep-seated and longstanding... there is no magic bullet.... But a few obvious steps would help.

For starters, the Democrats have pledged to raise the federal minimum wage, which is now at its lowest (relative to other wages or prices) in a half-century. Making the Earned Income Tax Credit more generous would also help.

Beyond that, our government needs to repair and thicken the badly tattered safety net for the middle class. Tens of millions of Americans live in fear that a major health problem could reduce them to penury.... Health insurance poses complex problems that will not be solved easily or cheaply. But it is well past time that we started moving judiciously toward universal health insurance. Covering all children is a sensible first step.

Retirement security is another worry of the non-rich majority.... Fixing Social Security is not that difficult with a little bipartisanship and a dose of goodwill -- two more things the voters want. That said, all realistic solutions involve moderating benefit growth and/or raising more revenue.... The federal budget deficit, the negative personal saving rate, and our massive borrowing from abroad are all evidence that America is focused too much on the present and not enough on the future. We need a multidimensional investment strategy to change that orientation.

Two of the top priorities should be equipping our work force to cope better with the rapidly globalizing economy, and reducing our dependence on oil and gas. The first requires more and better education and training. The second requires a greater commitment to research on alternative energy technologies, plus serious conservation measures by consumers and industry....

[M]aking hard choices is what grown-ups do, and the voters were telling the politicians to grow up.

The federal budget deficit is a concrete example.... With the baby boom generation about to retire, the budget should be in surplus. But instead, we face cumulative 10-year deficits of $3.5 trillion -- and worse after that. You can blame this sorry state of affairs on either excessive tax-cutting or on profligate spending -- take your pick. It's more accurate to blame both, because fiscal discipline has utterly broken down.... Speaker-elect Nancy Pelosi has promised to restore pay-as-you-go financing -- a bipartisan set of budget rules that were originally adopted under the first President Bush, but then brushed aside under his son. Unfortunately, when paygo went, so did any pretense of fiscal discipline. A coincidence? We think not. The new Congress should bring back paygo immediately.