Oops

The United States is currently experiencing an economic upheaval. It has already spent half of the 700 billion dollar stimulus package earmarked by Congress in November with Bush giving GM and Chrysler the last $17 billion. The Stock Market has lost 40% of its’ value in just the last few months. Unemployment is at 6.7% and rising. Under-employment (those working in temp jobs or in part time positions though they prefer full time work) is at 12% and is also climbing. Just about everyone with national standing believes that the US and world economy will continue to get worse before it gets better. Most believe an economic up-turn will not occur until late 2009, at the earliest. The US has been “officially” designated by the National Bureau of Economic Research (NBER) as being in recession (defined as a period of general economic decline in Gross National Product [GNP] for two or more consecutive quarters). The US Government’s response to this meltdown has been to infuse large amounts of public monies into 157 financial institutions (e.g., AIG) and Detroit to keep them solvent, and to banks to enhance their willingness to provide private sector loans. We have not seen economic drama like this since the depression which, as we know, resulted in significant changes to the relationship between the private and public sector especially given that the sitting Republican administration that has overseen the current collapse also instigated the largest public sector “purchase” of the private sector in the country’s history. It is clear, that these two events, the economic meltdown and the Bush administration’s response to it, will result in significant and long term changes to our economic system. Crisis is opportunity as they say, so how do we, the electorate, want things to change? How can we take advantage of this crisis to enhance our long term financial and industrial well being?

During Allan Greenspan’s recent testimony to Congress he admitted how disappointed and surprised he was to see that the financial system (e.g., Wall Street, banking, mortgage industry, etc.) had moved away from making long term viable investments and instead encouraged investment in short term, high profit but high risk ventures (similar to the mortgage industry’s venture into making borderline loans). A recent review of the internal workings of companies receiving bail-out dollars reveal that most of their management and sales staff made 4 to 5 times more in bonuses than they had in salary, reinforcing their interest in short term high profit taking and away from sustainable investments with predictable moderate return of 10% a year (which had become standard for the Wall Street investor). When these “high risk” investments went sour client portfolios tanked (e.g., PERS, the largest public retirement system in world, lost $40 billion of it’s $170 billion investment portfolio in the four months between July and November of this year). However, even with the collapse of Wall Street, management and sales staff kept their bonuses. So, Greenspan admitted, the free market laiz e fair financial market that he “sold” to US politicians resulted in a greedy and short term oriented financial system disconnected from long term valuation. Greenspan’s free market economic philosophy became the foundation of the Republican economic platform, starting with Reagan, and has been a cornerstone of Republicanism ever since, perhaps no more so than what we have experienced with the Bush administration.

I’m no economist, only remotely interested in the subject in college. However, it would appear that all economies share a few a few basic and commonsensible principles: how much does the economy’s worker produce; how well does his product sell and at what price (e.g., profit); how much of the difference between the cost of a product and the selling price of the product get invested in future production, how much isn’t (i.e., how much is taken to increase worker wages, how much is taken as profit for management, etc.). An “economy’s” goal, then, would appear to be to enhance worker productivity/efficiency, maximize resource efficiency, and streamline the bringing of products to the marketplace (national and international) and to reinforce citizen confidence in the system itself. Confidence has a lot to do with how fair citizens believe the system to be, how just and equitable. With the current system in free-fall, dramatic revelations of huge CEO, and staff payouts for failing companies’, consumer confidence is lower than it has been in 20 years. So, major changes in our economic system are inevitable.

So, how does Obama and his new economic team, led by Timothy Geithner (Treasury Secretary select) and Lawrence H. Summers (Chief White House Economic Advisor) develop/refine the system to reinforce one with a mixed economic system based on long term sustainability and viability, what kind of tax system do we want and, lastly, what kind of overall economic system do we want to have (i.e., the balance between government oversight and free enterprise, and how much do we want government, versus the private sector, to develop and reinforce future economic policy regarding alternative energy, trade, white versus blue collar job development, agriculture, health care, etc.])? Comments please.