America faces a daunting challenge. Even as we dig our way out of the worst economic implosion since the Great Depression, we must construct the foundations of a new economy, one that extends opportunity to "every willing heart," and provides basic security – a job with a decent wage, affordable health care, a quality education, dignity in retirement – for every working family.
This will require far more than a short term stimulus. The current recovery plan must be understood as a down-payment on a sustained expansion of public investment vital to building this new economy. It is time to discard the scorn for effective government that contributed our current travails, and commit to making the investments critical for our future as a centerpiece of a new economics of shared prosperity.
The severe crisis exposes the abject failure of the conservative ideas and policies that drove us off this cliff. Now, the Obama administration and Congress struggle to enact emergency measures to get the economy going. But it is not sufficient to get the economy out of recession and go back to business as usual. The old economy cannot be resuscitated.
For nearly three decades, business as usual has been an economy of low wages and high insecurity, where families compensated for flat or falling incomes by borrowing against their homes, incurring credit card and medical debts, taking on crushing college loan burdens, while reckless financial speculators treated the real economy as a casino. That economy stayed afloat only through asset bubbles. Now that bubble economy has imploded.
We need to think beyond a one-time stimulus, and to think big to build a durable and broadly shared prosperity.
As President Obama suggests, this requires a revived social contract to replace the private promises on health care, pensions and job security that have been shredded by the corporations and the financial speculators. We must insure that every child gets a healthy and fair start in life, from pre-natal care to high quality education. We must construct a 21st century infrastructure, with transport and energy and communications leading the necessary transition to a sustainable economy. We must support the research and development that generate breakthroughs that forge the markets of the future. We'll need far more investment in workers and a commitment to a society where all jobs pay a living wage. And we will need to transform our global policy, because America can not afford to go back to being the consumer of last resort for the world.
A strategic, substantial and sustained recovery plan can provide a beginning. Strategically, the current recovery legislation makes critical investments in areas from energy efficiency to education and more. However, its effectiveness is weakened by excessive tax cuts, particularly those for business, that are poorly targeted for generating jobs. In size, at $825 billion over two years – about 2.5 percent of GDP annually – it is too modest in scale. With the collapse of consumer demand, the depression in manufacturing, the accelerating global downturn and the state and local budget crisis, it would be far wiser to spend that amount each year, rather than over two years.
What is critical, too, is that the increased investment be sustained. Only sustained public investment can rebuild the social contract destroyed during the past thirty years. These outlays must be deficit-funded until the economy comes out of recession. After the economy gains its footing, we need to pay for them in a fiscally responsible fashion, requiring both new spending priorities and higher taxes on those who can afford to pay.
This transformation will be contested. Already, the new administration is warned not to spend too much. The media is fixated on the size of the deficit, even though the debt-to-GDP ratio is modest and larger deficits are precisely what are needed in a deep recession. New sophisticated public relations campaigns are gearing up to frighten Americans about Social Security and health care commitments.
Politically, there is a real risk that the zealots of budget balance – the fiscal conservatives in both parties – will demand some human sacrifice as the price of going along with temporary deficit spending. The favorite candidate is "entitlement" spending. But the announced White House fiscal responsibility summit should not be the occasion for cutting back on Social Security. After the ravaging of badly engineered 401-k plans by the stock market collapse, Social Security is the one reliable source of secure retirement income. Nor can Medicare's projected shortfall be cured in a humane way--except by comprehensive health care reform that anchors Medicare in a universal system. At a time of dwindling health security, our one island of universal coverage should not be targeted for cuts.
We need bold, new thinking. Sustained and strategic public investment is only part of a new strategy for rebuilding the economy. The financial system must be regulated so that banks return to being the servant, not the master of the real economy. A more balanced trading system will require a 21st century industrial policy – beginning with new energy – to help compete in the markets of the future. We must empower workers and hold corporations accountable to insure that the blessings of productivity and profits are widely shared, and the health and safety of workers, consumers and the environment are protected.
The conference will be the kickoff event in a continuing campaign. Its conveners and steering committee include The American Prospect, the Institute for America's Future, Demos, and the Economic Policy Institute.
This first conference will focus on the need for substantial, strategic and sustained public investment in our future. Future meetings will address the other core elements of a new economic strategy to create a widely shared and sustainable prosperity in a global economy. It is time to think anew. This conference is designed to help begin that effort.