Adaptive Economic Oversight—Post 1

Good books on the economic meltdown, and economics in general, include:
· The Two Trillion Dollar Meltdown by Charles Morris (2009)
· Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by The Editors of The Nation (2009)
· The Subprime Solution by Robert Shiller (2008)
· Fortune Favors the Bold by Lester Thurow (2003)
· Head to Head by Lester Thurow (1992: A Classic, even if now dated)

Obviously, the failures of Treasury Secretary Paulson, Federal Reserve Chairmen Greenspan and Bernanke, and both the Clinton and Bush administrations in general, in adapting government economic oversight and regulation to the rapidly changing financial markets and technologies were both egregious and, quite literally in terms of collective resultant misery, nothing short of tragic. (No warnings/actions relative to outrageous trends in basic metrics like mortgage debt to home equity and personal income; home prices in relation to personal income; credit card debt to personal income; derivatives/other complex financial instruments to GDP; stock prices to corporate earnings; and massive credit swaps and the disastrous separation of risk creation from its ultimate consequences???)

Absent other calamities, like lethal pandemics, natural disasters, or escalated terrorist acts, President Obama’s team will probably return the economy to at least a semblance of normalcy over the next year.

But an undeniable and unrelenting major cause of the massive, unsustainable increase in overall debt is the increase in income disparity and the stagnation of average real wages, even as improvements in technology have consistently created major increases in productive capacity. Massive debt was created because America (and the world) can build more and better houses, cars, electronics, and a vast array of other gadgets and gizmos, than the collective everyman can afford to buy. As technology inevitably continues to advance, the economy will be more and more hamstrung by the increasing disparity in wealth and resultant over-concentration of purchasing power. (Even before the recession, actual production in many key industries was less than 75% of productive capacity in place. Now, of course, it’s far less. Witness the seas of new cars stored across the industrialized world, and the upcoming auto factory shutdowns.)

The ongoing perfect storm of increasing automation, immigration, and globalization will continue to eliminate good jobs for the average hardworking American, unless new well-paying jobs are agressively created and made widely accessible. It’s long been fashionable to support less government—but at times of crisis government is often the only possible answer. Absent adaptive new strategies, the tremendous overall potential of our continuously improving technology, productive capacity, and social infrastructure to ‘foster the common good’ will be more and more unrealized. The potential is wonderful—but the continuing trend is alarming.

My recommendations would be:

· Egregious failures in both strategic economic planning and in overall economic regulation and oversight have caused not only the current, near-catastrophic super-recession, but also have resulted in increasing income inequality and continuing loss of well-paying jobs, resulting in the need to turn the current crisis into a nation-mobilizing wake-up call for long-term radical reform. Continuous improvement in collective real wages is the only way to harness the amazing power of US technological innovation and productive capacity for the long-term financial security of all hard-working citizens; and that isn’t going to be achieved with a post-recovery ‘business as usual’ process of economic oversight.

· The task of promoting collective US prosperity is now so complicated (and the recent failures so outrageous) that it is advisable to create one new department—call it ‘The Office of Strategic Economic Planning and Technology Development’—with the following mandates, in addition to assuming the Treasury Department’s current ‘Promote economic prosperity and financial security’:
*One competent agency staffed with the very best and brightest—and one comprehensible and comprehensive website—with new, innovative trend metrics, such as indices of income and wealth inequality; jobs and wages by major industry; the impact of globalization on jobs, wages, and consumer prices; and well-publicized estimates of economic ‘Ponzi-layers’ (versus sustainable historic averages in comparison to relevant real incomes and GDP) embedded in stocks, home values, mortgages, consumer debt, corporate debt, and other financial instruments. With in-depth comment and analysis on all of it.
*With specific, clear goals, and innovative new metrics, implement meaningful performance-based financial incentives for senior economic overseers to help attract the best available talent into the new Office—along with a call to national service in a time of crisis. (The US economic system has been too purely capitalistic—and economic oversight not ‘capitalistic’ enough.) Rather than having many of the ‘best and brightest’ financial and economic minds in the country devoting their genius to developing complex financial instruments and sophisticated econometric models to prevail in the essentially rigged, zero-sum game that the financial markets have become, (creating nary a new product or improved process along the way) find ways to recruit, incent, publicize, and reward some of them for contributing to the daunting challenge of fixing and managing the overall system.
*A comprehensive, far-sighted, thoroughly-researched new policy on globalization, for the economic benefit and financial and general security of all Americans. Blind protectionism isn’t the answer, but neither are open markets an end in themselves. The Treasury Department’s current strategic goal of ‘Promote open markets and resist protectionism’ is way over simplified. Running huge trade deficits—borrowing from foreigners and selling massive amounts of US assets to the rest of the world—while both American manufacturing capacity and American workers stand idle does not make sense. Inadequately-regulated blending of our economy with low-wage-paying economies like China’s has contributed to the striking disparity between the remarkable growth in US GDP and productivity versus the virtual stagnation of the average working American’s real income.
*Implement a well-funded coalition of business, academic, and political thinkers planning for future well-paying jobs and the required skill sets. Accompany with voluntary aptitude testing and relevant targeted, thorough, and earlier career-specific training in public secondary schools. We have to find a way to convert accelerating technological progress into a better life for every hard-working citizen, at all levels of native ability. No one forced to do anything of course, but better, targeted opportunities made available for those who want them. Even as technology and automation continue to reduce manufacturing and construction jobs, there will always be plenty to do to improve everyone’s quality of life—if we manage the planning and training processes properly. Those jobs, at varying levels of responsibility, might be in education, health care, assisted living and nursing homes, computer and robotics technology, industrial engineering, biotech, medical research, city planning, traffic management, architecture, air travel, security, criminal justice, and youth counseling. And in vastly improving the oversight of the US economy—see above and below. Formalize a comprehensive process of analyzing the impediments to productivity, job creation, income and other equality, health, security, stability, and overall quality of life, and promote the development of new or improved jobs to reduce or eliminate those impediments. The important point is, The Office of Strategic Economic Planning and Technology Development coordinates with business and academic leaders in identifying changing human resource needs and skill sets and designing the proper training—and making that training readily available to those with the talent, interest, and determination to best capitalize on it.
*Identify with business leaders—as in the funding for development of green energy included in the stimulus package—where and how government should support development of key technologies, especially in ‘linkage’ industries.
*Promote more productive investment in general, that leads more directly to new technology, new products, improved processes, productivity improvements, and, again, to creation of well-paying jobs. Track the investment dollar—and promote venture capital and real business investment versus the rigged, zero-sum games of Wall Street and Hedge Funds.
*Develop regulations to keep risk with those best able to evaluate it, manage it, and ultimately mitigate it—‘live and die’ with it, actually. The way entrepreneurship has worked for centuries.
* Via the one central, well-publicized and well-organized web site chock full of meaningful trend metrics and informative comment and analysis, educate Congress and other political leaders, business executives, and the general citizenry on the key economic issues that are so integral to quality of life. And, in keeping with ‘what gets measured gets done,’ reporting and commenting to a better informed—and now more attentive—citizenry on performance against the right goals and metrics will promote far better and more responsible management of the economy than what we have suffered from lately.
*Obviously, a major strength of a free-market system is in the productive benefits of a significant element of ‘survival-of-the-fittest.’ But the unavoidable negative individual impacts of massive gaps in talent, charisma, energy, and other genetic traits cannot be then compounded by artificial, unproductive, and unfair impediments to wealth and income equality, such as we have had. Restoration of confidence in the economy and in government’s ability to regulate it is key, but improving the public’s perception of fairness of the overall system is also critical. To the extent possible, the most egregious lawbreakers who contributed to the collapse need to be rigorously prosecuted, with the goal of serious jail time and maximum forfeiture of ill-gotten gains, with compounding financial penalties. Relative to the US history of harsh penalties for drug and violent—or even potentially violent—crime, and much milder penalties for so-called ‘white collar’ crime, an ‘Index of Cumulative Misery’ should be developed and brought to bear in determining punishment. Rudy Giuliani, as New York District Attorney, in 1988 threatened to indict Michael Milken under the RICO laws, until Milken agreed to plead guilty to lesser charges. The potential for wide-ranging serious harm from illegal corporate and financial mismanagement is such that the cause of legal prosecution must be strengthened. The RICO laws could be the basis of new ‘FRICO’ laws, adapted for the types of illegal financial activities that have recently plagued the US--such creative new laws to make investigations, prosecutions, and convictions of both individuals and corrupt financial organizations more effective, while simultaneously facilitating both harsher penalties and easier seizure of ill-gotten gains. (Based on my first draft of the “Index of Cumulative Misery’ and related ‘Sentencing Guide,’ Bernie Madoff should be drawn and quartered on a Saturday night in Times Square—or on Worth Avenue in Palm Beach. George Bush and Hank Paulson haven’t broken any laws that I know of, but they should still, at minimum, both be sentenced to three years working for Freddie Mac, restructuring mortgages in an inner-city neighborhood, one by one. After the proper training, of course. And still with their work, especially George’s, very carefully reviewed. And from what I’ve seen on Jay Leno recently, George isn’t doing anything all that important now, anyway. Although from the clips I've seen, he certainly does seem to be enjoying himself.)