This is one of those eras of national crisis when the effective solutions to national problems are still far outside mainstream debate. Only a president can bring radical ideas into the mainstream. Under Abraham Lincoln, abolition of slavery went from unthinkable to inevitable. Thanks to Lyndon B. Johnson and Dr. Martin Luther King Jr., the White House embraced a radical social movement for civil rights. What will Barack Obama do to shift the political center of gravity?
To date, President Obama has managed to enact an impressively large stimulus bill -- bigger than would have been possible even six months ago. By contrast, his program to rescue the banks is still a variant on one proposed by the Republican Treasury secretary from Wall Street, Hank Paulson. Obama has overturned some extremist Bush policies. What he has not yet done is use his leadership to make necessary radical ideas mainstream.
However, there are several radical remedies that cry out for presidential leadership. Some of them are essential if we are to get the economy into recovery. Others are long-deferred reforms that America needs to build an economy of broad prosperity. Here are 10:
Use Direct Government Loans to Refinance Mortgages.
At most, the complex and largely voluntary (to the banks) system proposed by the administration will refinance about one distressed mortgage in three. That's not enough to stem the foreclosure epidemic or to brake the collapse in housing values. The administration did shift to a direct-loan program for student loans. Why not for housing? Because the mortgage industry would be extremely upset. Prospects: not very good, unless things get a lot worse.
Put Insolvent Banks into Government Receivership.
It's a much more direct and efficient way of recapitalizing the banking system than the patchwork that Treasury Secretary Timothy Geithner has just launched. Even if Geithner's plan "works," it will enrich a lot of middlemen at taxpayer expense, and it will provide a far slower path to a recovery of the banking system. Prospects: Obama is committed to the Geithner approach, unless it fails big time. So far, Wall Street loves it, and with good reason. It's another handout to the financial elite.
Nationalize the Federal Reserve.
Wait a minute, isn't the Federal Reserve already a public agency? Alas, no. It is a "hybrid," meaning that the regional reserve banks are controlled by a board of directors dominated by bankers. Back in the 1930s, FDR made a run at turning the Fed into a true government institution but was mostly blocked by the power of Wall Street. Today we see the costs of a non-public Fed. The Fed's huge contribution to the rescue of banks operates in secret, with little public accountability. There are proposals to give the Fed new powers, to serve as a "systemic risk regulator." Any such regulator should be a true public institution. Prospects: not any time soon. The Fed belongs to the banks, and the banks want to keep it that way.
Pass a Tobin Tax.
The late Nobel Laureate economist James Tobin had the idea of enacting a tiny tax on currency trades. A tax as small as one-tenth of 1 percent could raise large sums of money, because these financial trades have grown to immense scale, over $3 trillion a day by 2007. A modern variant on the Tobin tax would levy a tiny tax on all financial transactions. For ordinary purchases of stocks and bonds, the cost would be trivial. But for the complex, highly leveraged derivative transactions that sunk the economy, the cost would add up and could damp down speculative excess. The revenue proceeds, running into the hundreds of billions a year, could also reduce the budget deficit. Prospects: getting better as government seeks new revenue sources that don't raise taxes on most citizens. But will be resisted mightily by the money markets.
Put Tax and Regulatory Havens out of Business.
The most abusive hedge funds and private equity companies operate in offshore havens that have virtually no regulation and that refuse too cooperate with the tax authorities of advanced countries. After September 11, President George W. Bush issued orders to track money laundering but explicitly prohibited using the intelligence gathered for tax-enforcement purposes. Tax experts estimate that hundreds of billions of dollars are illegally evaded every year through these havens. If the major nations of Europe and North America acted in concert and required all entities doing business with European or North American banks or clients to follow common reporting rules, we could shut these abuses down overnight. Prospects: dim unless Obama decides he wants to really take on Wall Street. Could get better as the government desperately needs more revenue.
Enact a Carbon Tax.
"Clean coal" isn't going to do it. And while windmills, solar panels, and energy retrofits are all part of the solution to climate change, nothing changes behavior like a shift in relative prices. Prospects: slim to none, unless President Obama brings us a major economic turnaround first, in which case he has a lot of political capital to spend. In this case, the opposition isn't just the entrenched energy industry. It's also consumers.
Pass Comprehensive Pre-Kindergarten and High-Quality Child Care.
There are lots of useful dollops of funding for existing programs in the stimulus package. But nobody is thinking seriously about a seamless public system. A century ago it took a social movement of professionals and parents -- the movement for universal kindergarten as part of public schooling -- to start kids in school at age 5. Today, all the evidence suggests the need to start earlier. The opposition includes both fiscal conservatives and religious ones. But free public education was a pretty radical idea in its time. Prospects: once again it depends on the president's capacity to think outside the box.
Guarantee Workers the Right to Join a Union.
The modern labor movement really took hold in the late 1930s, a time when unemployment was still close to 20 percent. Yet unions grew because of militancy on the ground backed by allies in Washington. When full employment returned with World War II, unions were in a position to demand that wartime contractor profits be shared with workers. As Obama himself has declared, it's hard to imagine a broad middle-class society without unions. Prospects: the Employee Free Choice Act could actually become law this year if the president decides to make it a political priority.
Provide Health Insurance For All.
Obama's plan hopes to take a big step toward universal health insurance without putting private insurers out of business -- by allowing private plans and a new public one to compete head to head. His way is more expensive than a single-payer system. If enacted, sponsors hope that it would logically lead to a comprehensive system, as the superiority and greater efficiency of the public plan became evident. But to get that tricky maneuver right will require as heavy a political lift as cutting directly to single payer, which would be my preference. Still, if Obama can pull this off, I will take my hat off to him. Prospects: an uphill battle. Bringing the insurance companies into the reform coalition is a delusion. They will destroy all the details needed to make the strategy succeed. Better to flag them as the opposition.
Use Very Large-Scale Public Works.
The Obama stimulus package is spending $787 billion over two years, about 2.5 percent of gross domestic product. The economy is now shrinking at the rate of at least 6 percent per year. In the Great Depression, despite FDR's large public-works programs, the unemployment rate never dropped below 14 percent until we mobilized for war. During World War II, government spending finally expanded to a scale adequate to end the Depression, and unemployment melted away. It should not take a war to realize that we have vast unmet public needs that can rendezvous with adequate public outlay. Prospects: Things have to get worse first.
All of these ideas have four things in common. They are essential if we are to restore broadly shared prosperity. They are at the far fringes of political debate. They require dislodging the political influence of powerful lobbies. And they would be supported by a majority of Americans if a president decided to lead.
You will hear over and over from the political right that Obama is spreading himself too thin. They said that about Roosevelt. But a national economic crisis is a political moment for broad reform on multiple fronts.
Social Security was an impossibly radical idea until it was enacted. So was Medicare. And so were the great civil-rights acts of the 1960s. Then they suddenly became utterly mainstream, so well entrenched in the hearts of Americans that they proved impossible to dislodge. But before they could be enacted, a titanic struggle was required, and a president had to decide to put his prestige on the line. That's the essence of progressive leadership.
