1. The most important short-term problem is jobs. The human and social costs of unemployment are crippling – you stay poorer for a far longer time, your health is worse, you die younger, your children do worse in school, your family is more likely to break up, you are more likely to fall into poverty, you lose your trust in public institutions, and the social bonds that knit communities together dissipate. During this recession, unemployment spiked, and it hasn’t really fallen. This is a jobless recovery, quite different from the trajectory of past recoveries. There are a number of reasons for this. First, demand is still in a slump, and so firms are not producing. This is not too surprising in the aftermath of a major collapse in housing and financial markets. Second, the sorry state of the housing market is inhibiting mobility – it has become much harder to follow the jobs. So clearly, fixing the problems in the housing market is a priority. Other policies include direct hiring subsidies, payroll tax holidays, or a spurt of labor-intensive public investment in needed infrastructure. Sadly, none of these items are on the agenda. Instead of being the most important policy challenge, it is being ignored.
2. The fiscal deficit is not the central short-term problem. The debate here is so incredibly skewed. Despite popular conceptions, there has been no burst in spending. The current deficit arises primarily from the collapse in revenue that came with a recession of this magnitude. What happened was perfectly predictable. The problem was that the starting point was too weak, and this was caused mainly by the Bush tax cuts and military adventurism. Simply restore the tax rates to those of the Clinton years (boom times!) and cut back on military spending, the there is no longer a deficit problem. The real issue is that the Republicans are using the current enormous deficit to push through a radical social agenda of paring back state involvement in social spending (and yes, social spending seems all they care about cutting), and continuing to reward the wealthy is risky tax cuts.
3. Health care costs are a key long-term problem. We hear about this mainly from the budget side, where the main fiscal challenge will be rising health care costs (not social security). But this is a primarily a private sector problem, where costs are rising a lot faster (and have been for 30 years or more). Simply shifting health care off the government balance sheet will not solve the problem – in fact, it will only make it worse, as we saw with the CBO’s assessment of the Ryan plan. Like it or not, Medicare is cheaper than private alternatives as it can bargain down prices and keep overhead costs at a minimum. So the best way to control long-term costs is a single payer system. The second best way is to rely on the private sector – twinning an individual mandate, some form of community rating, and subsidies to make everything affordable. In other words, the Affordable Care Act. Of course, there is still some way to go on cost control.
4. Poverty and the lack of health care is a scandal. The United States has some of the highest poverty rates, and the most marginalized and economically vulnerable people among the advanced economies. As we learned during the Great Recession, social safety nets are inadequate. Poverty rates, homelessness, and uninsurance rates jumped up dramatically. This human misery is simply unacceptable in a country of such wealth. There is a direct correlation between poverty rates and social spending. Ane while the Affordable Care Act goes a long way toward universal coverage, its full implementation is still many difficult years down the road.
5. Inequality is the leading long-term economic problem. The facts are by now all-too familiar. Over the past quarter century, the share of income going to the very rich (top 1 percent or less) has skyrocketed, while real median wages have stagnated. Rising inequality is bad for the economy, bad for stability, and bad for cohesion. We need policies to make sure that, once again, the dividends of growth accrue to the entire population, not just the top. It used to be that way, and it must be again. Key policies include investment in education, a restoration of collective bargaining rights, re-regulation of the financial sector, and a return to a more progressive tax system.
6. The financial sector still threatens stability. As we saw during the Great Recession, a run-away financial sector has the ability to bring down the entire global economy. A key problem is a violation of subsidiarity – financial firms are too big, which makes them too dangerous. Their huge size leads them take too many dangerous risks (the “too-big-to-fail” moral hazard problem), allows them to corrupt the political system, and encourages them to seek maximum personal profit instead of serving the real economy by bringing together savers and borrowers. The answer is greater regulation, and a break-up of the Wall Street firms, which are now larger and more dangerous than ever. It is only a matter of time before this volcano erupts again…
7. The United States must invest in the future. The future economy needs green investment, new infrastructure, and high-speed trains. It most certainly does not need more incentives to invest in oil and gas. Other countries are already far ahead of the United States here. Americans must also accept that they can no longer over-consume energy. The era of MacMansions and SUVs must end. It is time to put a price on carbon, either by taxation or cap-and-trade.
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