Bo Cutter

Roosevelt Institute Senior Fellow and Director of the Next American Economy Project
Roosevelt Institute Profile

Recent Posts by Bo Cutter

  • Larry Katz on the Real Reason Education is the Key to Economic Growth

    Sep 25, 2012Bo Cutter

    The expansion of the American education system produced 100 years of economic growth, but we need a new model to achieve a sustainable, equitable future.

    The expansion of the American education system produced 100 years of economic growth, but we need a new model to achieve a sustainable, equitable future.

    The Next American Economy breakfast seminars resumed last week with a discussion with Professor Larry Katz focusing on his and Professor Claudia Goldin's book, The Race Between Education and Technology. If you haven't read this book, there is a great deal about our economy you won't understand. If you don't read at least the introduction now that you've been told, shame on you.

    Larry has several fundamental insights. (These are the ones I picked out; he might prefer to highlight others.)

    First, at a minimum, 25 percent of our productivity growth -- and therefore our economic growth -- over the 100 years between 1870 and 1970 is due directly to increases in the average number of years of education of the American people. It is highly likely that the actual contribution of education is significantly greater; 25 percent is a minimum.

    Second, during this period, economic growth was high and equality actually improved in America despite fundamental economic and technological change -- change every bit as great as the changes we have seen in the last 30 years. In other words, we have been here before. We dealt with the effects of technological change in the past through advances in education. There is no obvious reason we could not do so again.

    Third, the fundamental educational change during this period was "the high school movement," a grassroots-driven movement that saw free, gender-neutral access to high school as critical to community success. 

    Fourth, there has been no recent educational revolution similar in scope to the high school movement, and the big change that has occurred -- the growth of post-secondary education -- has not been free. Not coincidentally, the growth of educational attainment in America has slowed, economic growth has slowed, and inequality has risen. 

    Finally, this slowdown in education is probably a more important factor in the stunning rise in inequality we've seen than the shift of income toward the top 1 percent, which has grabbed more of the headlines.

    Based on this discussion with Larry, I conclude that the mantra of the next successful political movement in America should be sustainable, equitable growth, and that this is a plausible goal. 

    I'll go further. A long period of relatively high economic growth is within our reach starting in a couple of years if we would get out of our own way. I've written a piece on this titled "An American Renaissance," which I'll send to anyone who asks.

    But this is not a layup. If we are to grow more rapidly over the next 20 years than we did on the last 20, we have to have a productivity revolution. More of our growth will have to come from productivity -- about 80 percent in the next decade, as opposed to 35 percent to 50 percent in the last three decades. To keep growth constant with the last 3 decades, labor productivity will have to grow by about one-third. If none of this happens, the generation born during the last decade will experience about 60 percent of the per capita income growth as did the generation born in the '60s.

    The single most important thing we could do to increase the rate of growth of productivity is to increase the level of educational attainment of Americans. But sustainable, equitable growth is not a goal either of our current parties cares much about. The current progressive movement's singular focus on income distribution is both misplaced and convenient. Misplaced because there are better, more available paths to take that would accomplish both more equity and more growth; convenient because this focus enables it to ignore all the real issues. The right's obsession with unfettered markets is even more nuts and completely ignores the economic history of how American growth actually happened.

    A true next American revolution in education will not be a simple linear extension of our current system. It will involve a combination of lifelong learning and certification, a commitment to teaching students how to learn continually, an equally deep commitment to what Larry Katz calls contextual training, a renovation and invigoration of our community college system, the use of the web in unique, student-oriented, and user-friendly ways, and major long-term costs. I would guess $50 to $75 billion annually for a long time -- between one-third and one-half a percent of GDP.

     But our current plan, of course, is to do nothing meaningful. As I've said before, the two parties are on a course to gut most of the government in order to protect the entitlements and retain the worst features of our current tax system. As an example, the total of all of the non-personnel investments in the federal budget is now $310 billion, or 8 percent of the total federal budget and slightly less than 2 percent of GDP, and it will fall to $270 billion, or 5 percent of the total budget and about 1.5 percent of GDP, over the next 10 years. This is a plan to build a low-growth, unsustainable economy with growing inequality.

    Not to belabor a point I've probably made too frequently, but the door is wide open for what one might call a new progressivism or a new conservative movement. The old right can then focus on its Brigadoon-like vision of a time when the market roamed free and unfettered. The old left can focus on income distribution. And the real work of building a workable society based on sustainable and equitable growth can be carried out by whoever decides to reach first for the prize.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

     

    School classroom image via Shutterstock.com.

    Read more

    Share This

  • The Post-Convention Reality of Taxes and Revenues

    Sep 10, 2012Bo Cutter

    The debate over taxes is trapped in the past. We need new revenue sources, and a carbon tax is a good place to start.

    Two big points emerged from the conventions: the horse race became clearer; the actual policies became murkier.

    The debate over taxes is trapped in the past. We need new revenue sources, and a carbon tax is a good place to start.

    Two big points emerged from the conventions: the horse race became clearer; the actual policies became murkier.

    Romney received no convention "bounce," while Obama received a moderate bounce. (The "distraughtness" index of conservative columnists has reached an all time high. This index is best measured by the degree to which George Will and Charles Krauthammer depart from anything remotely definable as reason. Mr, Krauthammer just set a whole new standard by writing a column that saw Michelle Obama's speech as a new sign of the apocalypse. Mr. Will wrote a column yesterday blaming the ills of college football on progressives and by implication Democrats.)  The bounce will go away, but Governor Romney now faces a tougher uphill climb. The FiveThirtyEight blog now gives President Obama an 80 percent chance of winning. The last plausible remaining chance for Mitt Romney is the debates, and maybe he can turn around that 80 percent number, but Governor Romney's convention speech is reasonably good evidence that he won't.

    So President Obama really will have to fashion a set of policies and a governing strategy for the next four years. And there's the problem. Neither convention offered a shred of useful policy. The ideological core of both parties see returning to the 1950s as the direction to take. Both conventions and both parties have already rejected the idea that there actually are hard choices.  I developed my own theory years ago that the more any candidate congratulated himself or herself on their willingness to make hard choices, the less they were actually willing to make any such choices. 

    And neither of the conventions offered up any view at all of the future beyond the election. Neither party can come to grips with real policy or choices about the future because they are both caught in a struggle to the death about, in essence, the past.

    Taxes and revenue are illustrations of all of this. The right hates the idea of more revenue because it sees government as enemy number one (except for Russia). The left wants more revenue but wants even more to whack via the tax code whomever it currently dislikes. Neither side seems to care much about what ought to be the goal -- equitable, sustainable growth.

    Some realities about the current tax system: It is vastly overly complex, it is inefficient, and it doesn't raise enough revenue, which will be necessary even after you make allowances for substantial changes in today's entitlements. But the big, hidden-in-plain-sight point is that we have reached a dead end with the income tax. The Romney tax plan, which simply assumes there is a free lunch out there somewhere, won't happen, and would make matters worse if it did. The Obama tax plan doesn't come close to a solution, even after you assume that the affluent pay more, as we should. We are not going to change the big deductions very much, so the base-broadening strategy won't work. And not even Paul Ryan is willing to put out the details his budget glosses over. So we are going to need new revenue sources -- and as it happens, I have a suggestion.

    We should consider a carbon tax. (I have also argued that we should enact a low-level value added tax, but that's another day's argument.) A carbon tax would raise substantial revenue -- MIT's recent study estimated such a tax at about $30 per ton of carbon would yield $1.2 trillion over the next decade. At the same time, a carbon tax would be the single most important step we could take to slow global warming.  And now is a perfect time, as the energy revolution America is going through provides some actual pricing flexibility for a tax. We can make this change and still be a cheap energy platform for the next American economy.

    Would such a tax solve our debt/deficit problems? Of course not;  we are still going to have to cut the growth of spending and raise revenues. But such a tax would put a dent in the problem, make economic growth much more sustainable, and provide some lubrication for a possible bigger fiscal deal. There is no other idea out there I know of that does these things, taxes "bads" rather than "goods," and raises $1.2 trillion.

    (Disclosure: I chair Resources For the Future, an economic think tank in Washington, D.C. that focuses on energy, climate, and the environment and is carrying out substantial research on the carbon tax.)

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

     

    Tax forms image via Shutterstock.com.

    Read more

    Share This

  • After the Convention and Election, Obama Must Govern in Reality

    Sep 6, 2012Bo Cutter

    The conventions are all about having fun, but if Obama wins reelection, he has to get serious about his governing strategy.

    The conventions are all about having fun, but if Obama wins reelection, he has to get serious about his governing strategy.

    Nowadays, you have to see both parties’ conventions as theme parks or Three Stooges humor. As a viewer, you’re Dorothy in Oz or Alice through the looking glass. Conventions used to be about making a choice of nominee. Then, for a while, they were about making a choice and marketing. Now they're only about marketing. They are not about truth; heck, major campaign spokespeople for Romney have directly rebutted the notion of truth. They are not about policy, and they certainly have nothing to do with governing. They are about wearing funny hats, having some fun, and insulting the other guy. For me the high point of the whole Republican convention was ol’ Clint Eastwood talking to the chair.

    Until Bill Clinton showed up, the Democratic convention wasn't a lot different. To alter slightly a phrase President Clinton has used, he "put the corn where the hogs can get to it." No one from the Obama campaign, including President Obama, has ever put the arguments for a second Obama term or against a Romney term so well, or even come close. Having worked for President Clinton, I start out liking the man and in awe of his capacity to hold an audience. But his abilities go beyond that; he takes policy and governing seriously, he deals with his political opponents rather than simply dismissing them, and he respects his audience. His arguments are never simple or trivial. He made this convention by himself, and he made Mitt Romney look small.

    Now it's President Obama's turn. I hope he takes a risk and talks about the realities of his very likely second term. The almost entirely substance-free Republican convention gave him the license to do it, and Bill Clinton gave him the political space. We'll see. But in any case, the odds are high that President Obama is going to have to talk for real about his second term in about 60 days.

    What we know generally is that conventions rarely affect elections; the average "bounce" is two to four points and even that goes away within days. Romney's bounce looks to have been on the very low end of that range and to have gone away. President Obama will probably see roughly the same result. The truth is there are very, very few truly undecided votes out there to move one way or the other.

    And in the absence of a big, sustained bounce, the various oddsmakers say this election is heading toward an Obama win. The New York Times’ FiveThirtyEight blog gives Obama a 75 percent chance of winning, with 307 electoral votes. Nate Silver's analysis says there wasn't any Romney bounce. Election market sites Intrade and Iowa Election Markets give Obama a 59 percent and 64 percent probability of winning. And Real Clear Politics in its "no toss-up states" projection gives the President 332 electoral votes. All of the same sites suggest that Republicans easily hold the House and have a marginally better than 50 percent chance of winning the Senate (in almost any scenario, the Republicans gain seats in the Senate).

    Results could be different; if you toss an unbiased coin a million times, there are long runs of either heads or tails. But this doesn't feel like a "change" election to me. We're probably in for another four years of (very) divided government. So we move to reality. How will President Obama choose to manage his presidency under the circumstances he will surely face? More to the point, how will he, from the start of his second term, convince his audience that he intends to manage his presidency?

    As I've said a number of times, I do not think this administration has been good at strategic management. Harold MacMillan was right when he said that events were the biggest factor in the success of any prime minister, but there are still choices to be made. There were in President Obama's first term, and there will be in his second. In this administration's first term, there were four critical points at which I see little evidence that a hard-eyed strategic choice was involved: (1) an early over-interpretation of his mandate, (2) the decision to go for health reform and, in essence, drop ownership of the economic story, (3) a decision not to pick a fight with Congress in March 2011 over shutting down the government -- a fight he would have won, and (4) a decision not to endorse some version of Simpson-Bowles or Rivlin-Domenici.

    If the president is to accomplish anything, his administration has to be better strategically and harder-edged from the start of the second term. If it is better in these ways, I would argue that the chances of a successful second term are much higher than generally believed for two reasons. First, after the Republican far right indulges in a post-Romney-defeat ritual bloodletting, the party as a whole is going to realize that it has been taken down a blind alley and has to find a way back. Republicans will have to make some sort of deal. Second, the U.S. economy is about to start performing better than we expect.

    The basic choice the president faces is either to clear the underbrush and set the stage for focusing on our real future, or continue today's protracted standoff between the current left's and right's version of the 1950s as the ideal society. The current squabbling about debt, deficits, taxes, spending, and entitlements is mostly about the underbrush and is preventing us from looking at the future. And the squabbling is occurring mostly around the contours of an agreement everyone knows has to be reached.

    I do not in any sense mean these issues are unimportant, and I certainly do not mean they aren't hard. But we are not Spain or Greece; reasonable solutions exist, and we have time if we act. If we put ourselves on a path that plausibly solves these problems -- within the range of what "solve" means in politics -- over a decade, then we can move on. But we have to start. The president would do himself -- and us -- a big favor if he put these issues in his rear view mirror by endorsing Simpson-Bowles, or something as close to it as he can get, on November 7. To generalize that point, the president needs a strategy to win during the impending post-election lame duck session of Congress and to avoid looking like just another creature in that zoo.

    If he does this -- which is undeniably difficult -- he can then spend his entire second term focusing on another truth that becomes increasingly apparent: America has a very bright future if we can somehow avoid snatching defeat from the jaws of victory.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

    Read more

    Share This

  • Who's Going to Build the Next American Economy?

    Aug 6, 2012Bo Cutter

    President Obama's "you didn't build that" comment highlighted the importance of public investment, but we're not doing anything to make it happen.

    President Obama's "you didn't build that" comment highlighted the importance of public investment, but we're not doing anything to make it happen.

    I'd like to restart "The Cutter Report" with a commentary about President Obama's remark that "you didn't build that." Relax; I'm not going to pile on the endless series of brainless remarks about how the president hates the private sector. For the record, I don't think he does. I think the endless spinning of the president's remarks by Governor Romney, a whole slew of Republican political "experts" (how do you get to be one of those?), and every half hour of Fox News is only another sign of the apocalypse and nothing to be taken as actual real thought about anything that matters.

    Rather, I'd like to take his comments seriously, as I think he intended. So let's start with the fact that President Obama is simply correct. It's no more complicated than that.  I've spent two-thirds of my career in business and I think he's right, and so would every businessperson I know outside of the brainless debates of this presidential campaign. We are all damn lucky to have started, run, and been in businesses in America. Not one of us could have done any of this if we were trying to do it in the Eastern Congo. We have a Constitution, a sense of private property, laws, honest courts, decent infrastructure, great R&D, and on and on.  

    But right now, we risk losing some or many of these advantages. As I detailed last year, and as Third Way, a centrist think tank, spells out in its new paper, "Collision Course: Why Democrats Must Back Entitlement Reform," we have entered an era when as a nation we have decided not to invest in either hard or soft public infrastructure any longer. I estimated then that our total domestic public sector investment is about 5 percent of GDP and I calculated that this will fall to around 2 percent of GDP over the next 10 years (I used OMB numbers, but the projections are my interpretation). Third Way's numbers show similar trends. Federal investment spending will drop from 6 percent of GDP in 1962 to a projected 2 percent in 2018, or from 3 percent of the federal budget to 10 percent. As I've said before, I think this is a disaster. Why?

    First, I completely agree with the central implication of Ben Friedman's classic book, The Moral Consequences of Economic Growth. There may be problems that come along with economic growth, but they are nothing compared to the problems of no growth, as we have all seen. And none of the problems progressives care about can be solved in the absence of growth.

    Second, as a general proposition, growth is not possible in the middle or long term without investment, and I mean both public and private investment. 

    But third, investment is even more important to us today, right now. The core truth is that if we are to grow as rapidly over the next 20 years as we did in the last 20, we have to have a productivity revolution. More of our growth will have to come from productivity -- about 80 percent in the next decade, as opposed to 35 percent to 50 percent in the last three decades. To keep growth constant with the last three decades, labor productivity will have to grow by about one-third. If none of this happens, the generation born during the last decade will experience only about 60 percent of the per capita income growth as did the generation born in the '60s. And creating a productivity revolution is going to require an investment revolution in both the private and the public sectors. 

    But we're not going to get investment or a productivity revolution or decent long-term growth. Growth is certainly not at the core of either political campaign now. Public investment is disappearing from the federal budget, and private sector investment is at best mediocre. Neither end of our ideological spectrum cares enough about growth to make it a priority. (As the loading dock foreman said, "Sure my boss cares about quality; he mentions it at least twice a year. But he talks 'shipping boxes' about three times a day.")

    So if you take President Obama's comments as true -- as I do -- and you see them as a shorthand view of the combination of elements that actually creates growth, and if you project forward a little bit, then we aren't going to be building much of anything in the future.    

    (Note: Many progressives strongly disagree with Third Way's paper. I refer you this post on Bill Keller's New York Times blog, "Boomers and Entitlements: The Next Round," for a debate between James Galbraith of the University of Texas, who also critiqued the paper here at Next New Deal, and Jim Kessler of Third Way. Keller's issue is not my issue in this particular post, but I agree with him, and after reading the Third Way paper and the debate, I mostly agree with the Third Way perspective.)  

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

     

    Construction workers image via Shutterstock.com.

    Read more

    Share This

  • How to Avoid the Long-Term Damage of Unemployment: A Discussion with Till von Wachter

    May 23, 2012Bo Cutter

    Recessions have long-lasting consequences for the unemployed, but the U.S. policy response only offers short-term solutions.

    Yesterday morning the Next American Economy breakfast seminar hosted guest Till von Wachter, who led a fascinating but disturbing discussion of the long-term effects of unemployment. Till, a professor of economics at Columbia, has become known more and more broadly for his research in this area. You can watch my interview with him below:

    Recessions have long-lasting consequences for the unemployed, but the U.S. policy response only offers short-term solutions.

    Yesterday morning the Next American Economy breakfast seminar hosted guest Till von Wachter, who led a fascinating but disturbing discussion of the long-term effects of unemployment. Till, a professor of economics at Columbia, has become known more and more broadly for his research in this area. You can watch my interview with him below:

    When a worker loses a job during a recession and goes through a period of long-term unemployment, both the short- and long-run effects are devastating. We usually think of the short-run reduction of income and the family crises that reduction can cause, but according to Professor von Wachter, the longer-run effects are even greater. Lifetime earnings are reduced by as much as 20 percent, health worsens, mortality rises, divorces increase, children's school performance declines, and the lifetime earnings of the next generation are lower.

    It's important to underline that Till's work focuses on the effects of recessions, not unemployment in all periods. Our economy is constantly churning, far more than most recognize, and men and women are constantly changing jobs -- mostly voluntarily, but also involuntarily. In periods of growth, these job changes don't seem to have the same effects.

    There are several explanations for the long-term effects of unemployment in a recession. Sometimes workers who have privileged positions because of factors such as long tenure or union membership lose those positions. Once unemployed, workers may lose skills that they have developed while working. Recessions also tend to "reset" all wages for new workers, including those who are rehired. (This also affects graduates who enter the job market during a recession, as their earnings are also lower over a long period of time.)

    We have really not developed policy tools to deal with these pervasive effects of unemployment and recessions. Our policy remedies focus almost entirely on short-term income replacement and not much -- or not very effectively -- on the long-run effects.

    Another part of Professor von Wachter's work is currently focused on a broader issue in recessions: does "creative destruction" occur? It is sometimes argued that recessions sort of boil away excess and therefore are regrettable but necessary aspects of our system. Till's work here is beginning to suggest that this just isn't so. It's not just marginal workers who lose their jobs, and recessions do not lead to particularly high levels of sectoral change. So it's hard to find positive arguments for recessions that offset the negative effects on workers. (I know that sounds like an obvious point, but economists do have to ask.)

    So what? Where does this take us?

    It takes me first to Ben Friedman's book The Moral Consequences of Economic Growth. Friedman argues that the consequences of sensible growth are so pervasive and positive that we should focus much more on it. I've long argued that this should be the mantra of the radical center, and even of progressives.

    Till's work suggests a corollary: we should focus not simply on growth but on increasing the long-run probability of stable growth by reducing risk, thereby reducing the occurrence of recessions and their severity when they do occur. (Yes, I have in mind our financial system with four major banks all clearly too big too fail providing a huge share of all credit in the U.S.) Good businesses routinely look at – forgive the jargon – risk-adjusted rates of return; macroeconomic policy should, too. A risk-adjusted view of the economy in 2007 might have made a lot of people much more sober about likely future scenarios.

    But the punch bowl is always kept out too long at the party, and recessions will occur. What more can we do that might be effective in reducing the long-term effects of unemployment?

    I distill three lessons from Till's work. First, short-term income replacement and government work programs are not the answer. Second, the real problem is a loss of job skills and human capital. Third, most job training programs seem to have had at best mediocre success because they are hard to design, hard to manage, aren't routinely evaluated, and can't focus on the truly critical skills that are developed and maintained on the job.

    America needs to develop formal mechanisms that keep more workers in their jobs – mechanisms that allow their hours or even wages to adjust rather than have the only real adjustment be the on-off switch of full job loss. We might, for example, look at Germany, which, in the recent Great Recession, avoided the severe rise in unemployment we had here in the U.S. The German experience is complicated, but Germany does have formal approaches to job-sharing and a highly developed program of work-time accounts. These had a substantial and positive effect in Germany, yet we don't have them.

    We're in the middle of a big debate about the nature of capitalism. A lot of truly stupid things are going to be said on both sides about capitalism and each other. I've been a proud but fairly minor league capitalist for a long time, and I know its workings can be made better. Long-term unemployment and its effects do not have to be a partisan issue. There are some actual concrete steps we could take that would do real good and make the Next American Economy a better place.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic presidents.

    Read more

    Share This

Pages