Discussion about We need a Main Street Project

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A Different Take

What went poof .. the air in this bubble -- was not anything as solid as house prices or as ephemeral as silk hatted capitalists, what went poof is the myth that "money" itself is productive.

Picture ... Obama's house in Chicago. Currrent value about 1.3 milli0n. About 10,000 square feet with a huge 1000 bottle wine cellar.

Our economy has depended for decades on the weird idea that buying stocks was the same thing as investing in companies we "bought." Of course, this was rarely true. If I bought $100,000 of GM five years ago. those shares had no effect on GM's ability to business unless GM diluted my value by selling more shares. The stockholder may have gotten richer but GM's change in capitalization, i.e. its newt worth, was not in parallel with its ability to invest.

If that sort of idea is too obvious, things got a lot worse under Clinton and Bush when the awesome ideas of securitization, hedge funds, and derivatives replaced stocks and bonds as the best way of investing. These three horsemen of our apocalypse have one thing in common .. they equate productivity with the ability of money to make itself. Underlying this elegant fantasy is the scary idea that an economy can grow with NO investment in "real" goods or services. This was a bubble without even the thin skin of some real value in tulips or Internet real estate.

OK. I am not an economist but if I am correct, the fix for this crisis is ... deflation! We need, in effect, to revalue money to better reflect its productivity. Krugman's ideas seem to me, just like Jon Devore's, to do just that.

The criteria for our stimulus should be very simple ... does this investment increase our productivity? We need to act more like Sweden, Japan or China by thin king of the US as one big corporation and choose investments that benefit our competitiveness.

What does this mean?

1. We do NOT lower taxes or give rebates so folks can buy more Chinese prom gowns.


Sure this will make jobs at Wall Mart, but Wall Mart does not add value to our productivity so, in the long run those jobs are not helpful

Nonetheless, no long term investment will help if we slip into a deep recession. That means we need to under gird the safety net .. unemployment, job retraining, universal health care, tuition relief are all urgent needs.
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2. We do NOT prevent companies form becoming bankrupt.

Bankruptcies in this country can be manged very well since the courts have the ability to restructure rather than destroy. I like the idea of using Fed funds to help with the restructuring. E.g. lets let GM go toes up and restructure it to cut it excessive number of brands and build a better structure for high tech competition for efficient cars.

A key part of this is moving to world standards for government, rather than employer, based health care and retirement programs. As painful as it might be, the new GM ought no longer to function as a pension plan for its ex workers.


3. We DO spend money on infrastructure.

Here in the NW, we ought to build 1-605 ... a new, rural highways from Vancouver to Portland and upgrade passenger rail to bullet train status.

The entire US rail system, power grid, water distribution system is ripe for reconstruction.


4. We DO invest in high end education.

I am less than enthusiastic about spending money on community colleges. Like a tax refund, this sort of activity does help individuals but it does not provide a long term increase in productivity.

It would be asinine to give up the intellectual leadership offered by our top schools in an era where intellectual property may be our best investment.

5. We DO fix the effin immigration laws.

Americans ought to be able to compete for entry level wages and construction jobs while the best of world talent continues to come here to work for the US and become citizens of the world's greatest multiethnic society.

The Kennedy McCain Act needs to be reintroduced ASAP.

6. We DO invest in alternatives to suburbia.

The hidden costs of living in Issaquah and working in Redmond are nuts. Toll roads and light rail provide incentives for people to live closer together AND preserve green space.


7. We DO cut our military.

Past recessions have been solved by wars. This one will not be for the simple, cold reason that there is no large war we can win.

Money invested in Americans defending Australia from Indonesia or containing Russian imperialism would be far more effective building our own economy. This implies we need to return to the 1880s model of a balance of power by building alliances rather than trying to dominate the whole world.

8. We DO invest in key technologies.

Most of the growth in real productivity since WWII has been in technologies that began as government investments. Radio and TV began with RCA .. a government initiative. The Internet began as a DARPA project. Satellites grew out of the competition between the USSR and the USA to throw military stuff into orbit. Modern agriculture began in government funded genetics labs.

This does not mean we need phony pseudo wars that can not be won either. A war on energy, as one example, is inane because much of what the candidates promised is in a league with Reagan's Star Wars initiative.

There are, however, clear opportunities for investments in biotech. The USA has frittered away a huge amount of IP by having too little government support for technology development. The genome project alone offers immense opportunities we can not profit from because the US lacks funding for long term enterprises as opposed to 3-5 year corporate projects.

Much the same is true of energy technology. Our need is only partially for basic science support and more for funds that allow American firms to undertake projects where pay off may be ten years or more in the future.