OPA, Part 2

December 14th, 2011 at 10:16 pm

In part 1 of this series, I argued that the President got the diagnosis exactly right in his recent speech in Kansas.   I then suggested some more granular policy meat to put of those bones, and promised some more (ergo, Osawatomie Policy Agenda, or OPA).

Ezra Klein also yearned for more policy granularity and wrote about this problem—the “last-chapter problem”—where policy makers and analysts give a great diagnosis but kind of punt on the prescription.  Ezra goes on to worry that it’s not just political dysfunction, either…we’re not sure what to do.

…even if the magic wand could be waved and the blockages of Washington lifted, we would still be far from solving our economic problems. Think tanks fairly burst with good ideas for changing the tax code and improving the health-care system and rebuilding our infrastructure. But when it comes to explaining why, exactly, median incomes have stagnated for decades and what, exactly, we can do about it, the conversation gets a little quieter. We’re much better at solving policy problems than we are at solving economic problems.

I’m sympathetic to this view, and interestingly, more so having worked at top levels of federal economic policy making.  That is, solutions came to me more easily before I spent a few years inside the machine.  This isn’t just “you don’t wanna know how the sausage is made” or “the Senate is where good ideas go to die.”  It’s more that good economic policy making, whether it’s preventing a credit crisis or creating jobs, is harder than you think.  As one example, it’s one thing to conceive of effective stimulus; it’s another to implement it (and before opposition types go reading too much into that observation, let me assert that VP Biden–my former boss–did a pretty amazing job as implementer-in-chief; that was an $800 billion program with thousands of moving parts, and nothing of that magnitude goes off without a hitch, but the VP got as close as you could get).

That said, I humbly submit that the policy solution set is perhaps not as elusive as all that.  Here is my list of what it would take to restore broadly shared prosperity to the middle class, push back on inequality and promote mobility for the less advantaged.

–full employment to increase workers’ bargaining clout

–more union membership as a countervailing force to the YOYOs

–a lot more infrastructure investment

–more progressive taxation to support gov’t investment in the economy, the safety net, and education/training

–universal health care

–robust tax credits for low-wage jobs and a minimum wage set at a decent level and indexed

–tough financial regulation

–universal pre-K

There it is.  And sure, the devil’s in the details (how do we ensure full employment; what’s a “decent level” for the min wage?) and we’re obviously miles away from a politics that would entertain such ideas.  But I’ll bet you they would work.

Any takers?


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16 comments in reply to "OPA, Part 2"

  1. Jean says:

    One more thing that would really put it over the top …

    Guaranteed Higher Education

    • foosion says:

      That would be a good addition.

      It appears that one reason higher education is so much more expensive today is the withdrawal of government support. This benefits high income types, either through lower taxes or advantages for their children (the only ones who can afford higher education, at least without taking on crippling debt).

  2. Tom Shire says:

    Is it taboo to suggest tariffs to encourage domestic manufacturing? Why do American workers have to compete with millions of low-wage workers in Asia?

    • foosion says:

      Tariffs have two effects. One is to reduce the wealth of the nation as a whole. The other is to change the distribution of that wealth.

      The ideal solution is to have no tariffs, but set tax policy so that the benefits of trade are more equitably shared. The problem is that the benefits go to a small group who fight any attempt to share benefits. That group has been very successful in its efforts.

      The question is whether we move to a second best solution, such as imposing tariffs. We then have the distributional issue that they benefit the protected industries at the expense of everyone else, so we’re back to trying to redistribute.

      Also, if American workers are no better than low-wage workers in Asia, why would they expect to be paid more?

  3. David says:

    I also vote for more higher-education support.

    When I was in college, a sizable majority of the costs of running that public university were covered by the government. Today, it is a small minority of the costs, and a much higher percentage has to be covered by tuition. There are recurring rumors, for example, that the University of Michigan is thinking strongly about going private. The restrictions they face as a public university are very burdensome compared to the small amount of funding they get from the State of Michigan. I don’t know whether the rumors are true, but this sure seems like a plausible scenario to me.

    In the long run, we need highly educated people to compete in a global economy. This is one of the best infrastructure investments we can make.

  4. Geoff Freedman says:

    More questions. Do we know what caused income stagnation or income inequality? Did they both start to occur at the same time? Can we even be sure (economically speaking) that they are related? By observation, I suspect there is some correlation, but where is the proof?

  5. Tom in MN says:

    I agree on the higher education as well, but lets also make expand the pre-K to universal daycare. Before you can save for college you have to pay for daycare and it’s not cheap.

  6. Tom says:

    Sign me up! I am with you on all of this.

  7. Sharon says:

    I’m on board as well and a huge thumbs up to universal pre-K.

    Wishes, horses, well… you know the drill!

  8. davesnyd says:

    Any comments on Robert Reich’s “offer” today?


    It doesn’t seem perfect to me– we ought to inflation adjust the brackets. Also it isn’t clear whether he wants to tax capital gains as normal income (which makes sense) or at the highest bracket rate (which is how it reads to me and doesn’t make sense). But other than that– sounds pretty sensible.

    • pjr says:

      Bernstein and Reich together. One big thing missing: help to localities in funding good schools and teachers at elementary and high school levels (not just pre-K and post-H.S levels). We need to level this field at a high level if we are to restore upward mobility and compete internationally. Take the burden of funding schools off the backs of people living in poor communities. Use a much more progressive national income tax to give all kids good schools.

  9. Lynn says:

    Employees of corporations are as valuable as the capital contributions (shareholders) to the long term success of a business. Consequently there should be significant employee representation on all corporate boards. Consideration of the impact of policy decisions on both the profitable activities of a company as well as the effect it will have on the work force of a company should be factored into decisions It has worked fairly well for Germany as a model to study.

  10. Jim Z. says:

    Good list. My only qualm is how often even good analysts keep returning to “tax credits” for, well, anything. Tax credits are about as inefficient a tool as it gets, yet both the left and right can’t seem to wean themselves off them.

  11. Jim Edwards says:

    There’s a couple of issues that have me puzzled about macroeconomics and how it effects the middle class and especially global trade. The first is that India recently sold a bunch of dollars in an effort to strengthen the Rupee. This brought two questions to mind.

    First, why would India want to strengthen the rupee when it already has very strong laws restricting foreign investment?

    And second, does a central bank in a country that does not have a reserve currency, like the dollar or the Euro, face different decisions regarding interest rates and currency value?

    The other issue I don’t understand is that it seems time after time when there is a large infusion of money into the economy like the housing or dot com booms there is full employment and lots of stuff to buy, but no skyrocketing inflation or shortages. This seems that rather than efficiently allocating scarce resources to excessive demand, money has become the scarce resource?

    I hope you find time to discuss these. I’m trying to educate myself on economics, but don’t have many resources in India.

  12. David says:

    And how do you propose to pay for this? You seem to be long on ideas and EXTREMELY short on the paying for it. I would also argue that MOST of this problem in education is brought on by goverment by promising unions WAY nore that we could ever pay for.
    The forgotten factor is that the money I earn is MINE and I can make my own decisions about where I spend it. Therefor I can make good decisions or bad ones and goverment is NEVER going to fix that.
    Goverment actually makes no money it only consumes it. The answer is not more goverment but less, a revamped and no loop hole tax code and a balanced budget amendment.
    By the way you are so wrong on Biden. No “shovel ready jobs” and a waste of 800 billion on basically nothing.