1 Lawrence Summers

^ smartest economic policy guy on the A list : Lawrence Summers

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Last week I outlined some reforms badly needed if our nation is to restore the stock market to its beneficial purpose : helping entrepreneurial businesses to raise equity capital. In my editorial “Why Not Try Actual Capitalism,” I critiqued the arbitraging and speculation that have neutered stock markets’ capitalist purpose. I suggested a list of reforms, some of them radical, and added a call to raise workers’ minimum wage substantially so that they can actually participate in an entrepreneurial economy.

Today I want to discuss several others initiatives I consider vital to growing our economy while at the same time ensuring the participation in it of all full time workers. The major recommendation that I want to make today is that the Federal government enact a nationwide infrastructure repair and upgrade bill, no less ambitious than the Interstate Highway Act passed in the Eisenhower years; and that we fund it by borrowing the entire amount via Federal bonds.

There are several policy imperatives that attract me to this course. First, the nation badly needs infrastructure upgrades to roads, brides, railways, and public transit. The efficiency of our entire economy depends on it. Second, borrowing costs are almost nil. Federal bonds yield four percent for 30 years, much less or a shorter term. The money is begging to be borrowed. Third, most construction work is done by unionized workers, who draw a very generous hourly wage. The $ 1.5 trillion infrastructure program that I envision would put to work many thousands of such workers — indeed, most of the $ 1.5 trillion will go to wages — who then spend their fat pay checks into the discretionary economy : buying boats, second homes, adding to their first home, vacationing, new furniture and trucks, etc.; and this spending will hugely boost businesses that provide what these workers want, in turn boosting these businesses’s hiring.

So many workers would have to be hired, to absorb $ 1.5 trillion of spending that there might even be a worker shortage leading to higher wages for all. These increased wages would, in turn, generate increased Federal tax revenue with which the $ 1.5 trillion of Federal debt could be paid off, assuming that policy makers want to do that. Personally, I prefer that they do not do that, for reasons going bend the scope of this editorial.

Hillary Clinton has proposed an infrastructure budget merely one-third as large as my recommendation. It’s a good start but not enough. Bernie Sanders has offered infrastructure spending twice that of Clinton’s. My figure includes infrastructure not limited to transportation. Gas pipelines, power plants, and electric utility wires are infrastructure, too, and these badly need repair. Solar and hydro power still cost too much to compete in the utility market place, but they, too, involve infrastructure of their own and must be budgeted. (and of course utility workers are mostly unionized, too, and draw a fat pay check that , if boosted by my spending, can spark the economy.)

Some policy advocates dislike Federal spending. They disapprove of Federal borrowing even more. To their objections I make this response : since The Federal government exists, and has the power to borrow money and enact structural improvements, why not let it use these powers, as they benefit almost everyone and hurt almost no one ?

Meanwhile, there are Federal budget items that can be cut back and maybe should be. The entire structure of education is changing; so is schools administration. What need is there for continuing the Federal government’s primary funding role, if, in the new educational set-up, corporations — which have a major interest in securing adequately educated graduates — stand ready to fund and administer the process ? Federal education dollars should earmark college courses, to the extent feasible within the current tax tables, so that students do not graduate indentured to student debt far too enormous to pay back. Some nations in Europe actually pay students to attend college. That may be a bridge too far for America, but why can’t we at least relieve most of the debt burden ?

As with my first recommendation, relieving student debt is a boost to the economy. instead of having to apply almost all their discretionary income to paying back debt — much of t owed to private lenders who charge high innterest rates on the theory that students, who haven’t found a job yet, are a payback risk — isn’t it far better to let that income get spent into the entrepreneurial economy ? Granted that my recommendation would greatly downsize lenders of student debt, and almost eliminate the collection agencies whose call center collectors harass those who owe; but I can think of jobs a lot more productive for the economy — entrepreneurial jobs, innovation jobs — than chasing down debt owed by people who probably can’t pay it now or ever.

Let me note that almost no law benefits the economy more than Title 11 — the Federal bankruptcy code. Bankruptcy filings achieve three remedies:  one, the debtor no longer has to use his or her income to pay back old debt, thus can now buy discretionary stuff; two, firms, no longer having to expend money paying people to collect often uncollectable debt, can use its workers to actually create, build, and service stuff; and third, businesses whose debts are wiped out by a bankruptcy filing get a tax loss carry forward that can be directly applied against the next three years of income.

Student debt, however, was made almost entirely non-dischargable by an enormously misguided bankruptcy law reform enacted — bipartisan — during Bush 43’s second term. It seems that our Senator Warren, who has taken the lead on student debt reform, now includes .the bankruptcy situation in her advoacy. This is a wise move.

The fundamental policy objective of all these reforms is to maximize the money that income earners can spend back into the discretionary, entrepreneurial economy and to minimize obstacles to such spending. The greater the percentage of a nation’s people who can spend discretionary, entrepreneurial money, the stronger the economy — and the nation. It’s time that we take comprehensive action on all the fronts I have discussed in this article.

Lastly, I propose my capitalist progressive to the Republican party, which can be useful again to all the voters if it discards the current fear and loathing in favor of a confident and realistic agenda that confronts actual challenges, not gripes and rants. Can the GOP advance an alternative to the Democratic party’s reform, that arrives at the same destination via a better route ? Will the GOP once again take up the reform cause ? I intend to make it do so.

—- Mike Freedberg / Here and Sphere


  1. You point out lots of conditions that big organizations have a problem with
    — it really is tough for them to trust and let their staff reveal some character, it really is hard to allow them to create
    combined ventures and navigate all of the contract dilemmas.


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