It's Time to Stop Tinkering with the Economy

Sep 28, 2011Bo Cutter

The solutions being offered by both sides are too small and small-minded to meet the challenges we face.

I liked the president's jobs speech, but I was deeply disappointed with his budget speech on September 19. The president is missing an immense opportunity, and what may have been the last chance of his first term, to build a workable economic strategy. The undeniable truth is that nothing currently on the political agenda comes close to being sufficient to meet our problems.

When President Obama gave his jobs speech, I thought he would follow it with a budget speech that would change both the budget and the tax game, and then with an infrastructure speech that would provide a genuine bridge to long-term economic growth. There's a lot more to do than jobs, budgets, and infrastructure, but those three are not a bad start, and I thought there was an opening to build a real strategy -- one a president could both run on and govern by.

I may or may not have been right about the opening for a strategy; we will never know. But President Obama doesn't seem to be looking for that opening, and I was wrong about the path he was on. I think we are about to waste a year debating trivialities.

There is a fundamental mismatch today between the issues we are debating and the problems we are facing; between the issues the two parties are willing even to consider and what is developing as a grinding, long term economic crisis. We are still in the relatively early stages of what Carmen Reinhart and Kenneth Rogoff have called the "Great Contraction," an excruciatingly long period of slow growth and high unemployment that -- unless we act -- could easily become America's very own lost decade. We may be facing a European-led double dip recession. But wait, there's more: When this period -- this "Great Contraction" -- is over, we will not simply return to the world of the past. We are losing competitiveness, the middle class is hollowing out, we are not creating the right kinds of jobs, we are not preparing the next generation, and inequality continues to grow.

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In the face of these impending waves of real crises, both parties are displaying an instinct for the capillary, not the jugular. They are retreating to their core ideologies and refusing to budge from their different received wisdoms. Meanwhile a huge potential force is gathering in the center and looking around for a real set of solutions.

What is a "real set of solutions?" To characterize them in general, I agreed completely with what David Brooks wrote yesterday in the New York Times: "Try to reform whole institutions... there are 6 or 7 big institutions that are fundamentally diseased... The Simpson-Bowles report on the deficit was an opportunity to begin a wave of institutional reform." To say this another way, we should stop tinkering.

Here are more specific thoughts that take us beyond tinkering:

  1. Move now toward a combination of Simpson-Bowles/Rivlin-Domenici;
  2. Establish an infrastructure bank with a capitalization of $500 billion;
  3. Reform the income tax code; bring personal and corporate rates way down; create a super rate for super high personal earnings -- say above $5 million;
  4. Introduce a consumption tax and/or tax "bads" (fuel, green house gases);
  5. End the current employer tax exclusion for employee health care costs; put a ceiling on costs by converting it to a credit; move employees to the health exchanges which should be the central feature of President Obama's health insurance program;
  6. Require much higher capitalization -- say 15 percent -- of major banks;
  7. Create a jobs tax credit focused on small new businesses, which create the vast percentage of America's new jobs.

That's enough for starters. These are the kinds of big changes we need. They derive from ideas of both the left and the right. All of them land squarely on some "third rail" of American politics. None of them will actually be proposed by either of the current major parties. Together they show the need for a force or party of the radical center. But despite that word "radical," none of these are truly radical; we could do all of them. Together, they would together be a project for American renewal.

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.

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