Common Sense to the Economic Debate

Thoughts from a Militant Moderate

OK, nothing I am suggesting will immediately get us out of the fiscal mess we’re in…only time, common sense, and a willingness to put country over party will do that. But the demagogic, ideological lunatics on both sides of the political spectrum have amply demonstrated that they are lacking in the second and bereft of the third. So who knows how long this monetary madness will hover over our heads.

But it ought to be obvious to anyone watching the ideological inanity of the last few years that fundamental changes have to be made. So here are four suggestions. They are not magic bullets and they certainly aren’t a work of economic genius – but they might help in the future to prevent the crisis that we’ve gotten ourselves into today.

First, redefine recession. Two consecutive quarters of declining Gross Domestic Product may have been a perfectly adequate definition of a recession in the past. But in the past there was a reasonable correlation between GDP and jobs. The last four years have demonstrated that simply isn’t the case anymore.   I don’t care what some econometric model on some business school computer says, when one in seven Americans is either unemployed or has given up looking for work, we’re in a recession. We don’t have to worry about a double dip recession; we haven’t gotten out of the first one. So change #1 – a recession is defined as two consecutive quarters when the economy doesn’t add as many new jobs as there is growth in the workforce. Workforce growth is about 1.3 million per year. Therefore if the economy isn’t adding more than 100,000 jobs each month, we’re in a recession.

Second, federal borrowing. Of course there should not be a balanced budget amendment to the Constitution. There are times when the country, just like a household, needs to borrow money, and it is prudent to do so. The problem is that both parties have ignored the “prudence” part of the equation. A balanced budget amendment is basically saying, “Members of Congress aren’t mature enough to act like adults”. Well, maybe that is true with this Congress, but it’s not always true. So here’s the new requirement – the federal government can borrow for capital goods, but not for operating expenses. It makes sense that you borrow to buy a house and pay back the loan over thirty years; it doesn’t make sense to finance the purchase of a McDonald’s burger. One more underwriting limitation – no more than 50% of the capital asset can be paid for with borrowed money, and the loan (represented by government bonds) cannot be longer than half of the life of the asset or 30 years whichever is less.

So it would work like this. The Navy needs a new aircraft carrier that will cost $9 billion (yeah, that’s what one costs today) and will last 40 years? OK, the government can issue 20 year bonds for $4.5 Billion. The Park Service wants to expand Yellowstone and that is going to cost $100 million? OK, presumably the life of that land is essentially infinite so the government could issue $50 million in 30 year bonds. But giving Senators a raise? Writing Social Security checks? Subsidizing ethanol production? Foreign aid for Egypt and Israel? Giving a stimulus tax cut? Those are operating costs and have to come out of current receipts.

Third, paying for wars. I don’t much care if you were for or against the wars in Iraq, Afghanistan or now Libya, maybe they were important for the security of America, maybe not. But what has been entirely absent is any shared sacrifice. The only ones who have sacrificed are the men and women in the armed services and their families. Yet since 2001, those wars have cost tax payers $1.2 trillion. (Actually that’s not true. Today’s taxpayers haven’t paid for those wars. Our children and grandchildren will pay for them. We just borrowed to pay for them…under both Bush and Obama). So if a war is necessary (and I believe sometimes it is) then there would be an immediate 5% surcharge on everyone’s income tax – beginning the day the first bomb is dropped. So we’d already be paying extra to pay for Libya. Is 5% enough? I have no idea. But beginning January 1 each year after the conflict started, the surcharge would be raised or lowered in an amount sufficient to pay for the previous year’s war expenditures. At least then: a) we’re not running up huge debt for our grandchildren; and b) we are all sharing the sacrifice.

Fourth, campaign contributions. Political offices are no longer elected, they are purchased. And they are purchased through the ridiculously high campaign contributions of special interest groups on both the right and the left. It’s no surprise that tort reform wasn’t part of Obama’s health care package – 93% of the PAC contributions of the American Trial Lawyers Association goes to Democrats. It’s no surprise that Republicans consistently oppose even the most modest gun control legislation – they’ve been getting over 80% of all the political contributions of the NRA.

So do I think the amount that can be donated each year should be lowered? No. I think it should be raised, to $20,000 per election cycle per candidate. That is any person, corporation, organization, can give up to $20,000 to elect the candidate of their choice. HOWEVER, no political contribution can be made to a candidate you aren’t entitled to vote for. So you live in Texas – you can make contributions to two US Senate candidates, one member of the House of Representatives, the governor and the President. But you can’t make contributions to a Congressional candidate in Oregon or a gubernatorial hopeful in Florida or a person running for Senate in Maine. You’d rather give your donation through the National Association of Realtors or the Sierra Club? OK, but they can only redistribute those funds in amounts equal to the contributions from that candidate’s district. Mitch McConnell and other opponents of campaign finance reform have argued that limiting contributions is essentially limiting freedom of expression. OK, well go ahead and make very large contributions to your favorite candidates. But it is not limitation on your freedom of expression to preclude you from buying a Congressional seat for someone you can’t even vote for.

So there they are – relatively simple. None of the above favors the right or the left (although both sides will resist them). Our system has failed us, and we have failed our grandchildren by sticking them with our bills. These modest steps will begin to take us back in a responsible direction.