How do we get out of this mess?
I鈥檓 sitting here with a strong cup of coffee perusing the terrible headlines in the 鈥攈ere鈥檚 everything above the fold:
U.S., European Markets Plunge Again
An alarm bell for an America in decline?
Confidence in government is crushed after debt crisis [with an amazing graph showing a 45% decline]
Democrats, nervous about 2012, want Obama to be bolder
[then there鈥檚 this little forward-looking item:] Asian markets retreat: 鈥hursday morning session down nearly 1.3%鈥�
How did we get into this mess and how do we get out? Those are big questions for a man who is only partially caffeinated. But here are some thoughts:
鈥揚olitics and politicians : If you elect people who believe the government does not work, that government is always the problem, never part of the solution, they will work tirelessly to make their beliefs come true. A 45% decline in confidence in gov鈥檛 is a badge of honor to them, corroborating their ideology.
鈥揟he 鈥淎merica in Decline鈥� theme doesn鈥檛 resonate with me, but we鈥檙e going through as wrenching a period as I can remember. Much of the recent damage is self-inflicted but over the longer term, as negative trends鈥攊ncome stagnation, inequality, weak job growth鈥搕ook hold, policy makers have mostly watched from the sidelines mumbling about self-correcting markets and market forces and market blah-blah-blah.
鈥揇ealing with the structural, i.e., longer term, problems like inequality, globalization, the quality of jobs, retirement security, and sustainable health care is truly challenging. There are often no known or obvious answers. You have to try different ideas, like research on cost effectiveness in health care, pro-manufacturing policy re globalization, better labor standards (e.g., higher minimum wages) and education policy to push back on income inequality and wealth immobility.
But solutions for the cyclical downturn in which we鈥檙e currently and intractably enmeshed in are known, obvious, and becoming more so every day. Paul Krugman not only writes about them tirelessly, but he and a few others, myself included, have pretty much been describing how things are going to unfold if we keep getting this wrong (economy stuck in neutral, high joblessness, little job growth, low interest rates, weak core inflation, too little investment). That should be a very convincing sign that we are right.
Obviously, there鈥檚 a lot of noise pushing the other way, but it鈥檚 no wonder that 鈥渃onfidence in government is crushed鈥� when policy makers fail to pursue known solutions at best and aggressively push the other way, toward recession-prolonging austerity, at worst.
How do we get out of this downward spiral? That鈥檚 the theme of pieces I鈥檓 writing for the Atlantic, the next one of which is forthcoming.
Briefly, we flush out the bad ideas pervading our policy process.
We replace them with ideas based on the recognition of market failures鈥攆ailures that are much more pervasive than the current model is capable of identifying.
We back out and implement the policy measures implied by those new ideas, all of which will call for more activist, 鈥渂older鈥濃�攁s the headline above puts it鈥攎easures from an adequately funded, efficient government that has the confidence of a lot more than 26% of the public.
We evaluate the results on the simple criterion that if the economy is not working for most of the people in it, it鈥檚 not working. If GDP and productivity are growing, yet middle incomes are stagnant and poverty is rising, it鈥檚 not working. If so, we start at the top of this list until we get it right.
Wow, that coffee鈥檚 really kicking in鈥鈥檇 better get to the office and start working on that new paradigm!
--------------------------
海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
