SOLUTIONS COME FROM LEFT AND RIGHT

I have, for some time now, tried to convince my friends on the right that we shouldn’t glorify capitalism as ALL good, nor demonize socialism as ALL bad. That fact is that there are good points from both systems and, in fact, our “American Society” is a blend of the two. Athough, we have never come to recognize that. I grew up in the fifties and I loved Mickey Mantle. I still think he may have been the greatest baseball player…ever. One of my favorite things about Mickey was that he was a “switch hitter.” He could hit from the right or the left with great efficiency. He used this special ability to take advantage of his skills and opposing pitchers. You see, left handed hitters have a better vantage point for hitting against right handed pitchers, and right handed batters have a better vantage point for hitting against left handed pitchers. Left handed hitters aren’t all bad, and right handed hitters aren’t all good. To be able to take the most advantage switch hitters hit from the left and the right.

Just as a switch hitter has those advantages…governments can take the same advantage by using the most advantageous points of view from the left and right too. Robert Pollin is a professor of economics from the University of Massachusetts and recently wrote an article for the Nation magazine, in the March 8, 2010 issue, with come suggestions for creating 18 million jobs in the next three years. A rather ambitious goal, but one we need to reach for if we want to right our ship. I’m quite sure he didn’t include every good idea out there…but, he does emphasize the need for the solutions to come from the left and the right, from private industry and government. The truth is they both create jobs.

One solution, in my opinion, is a more socialized perspective for health care. One disadvantage our private industry experiences with foreign competition is that health care is provided by governments in Japan, Germany, France, and China. Here in the United States every private business is competing with competitors abroad that have this huge advantage on them. It allows our competitors to provide a better value for the goods they sell to us because the cost of health care is not added to the wholesale cost of the foreign products we compete against. So, streamlining the healthcare system in our country by moving to a government run system would reap huge benefits for our capitalistic businesses. Of course, this can’t be accomplished in one fell swoop. It will require a prolonged transition period. Beginning with a government run “public option” health care choice would be a good first step. It seems obvious during the transition period this will surely bring the cost of health care down. The argument from the conservatives is that we can’t afford universal health care. They say we’ve got to control our spending and the only way to bring the “Great Recession” to a close is to curtail spending and reduce the federal deficit.

However, Mr. Pollin points out in his article that if we can bring the unemployment rate down to 4% that our troublesome national annual deficit will be extinguished. Our deficit will be a problem for us going forward and one that will not go away until we get back to employing people…lots of them. Right now about 15 million people are unemployed, and if we include the underemployed there are about 25 million people out of a workforce of 153 million workers. The only way to cure this unemployment tragedy is to release both public and private resources.

Banking reform is another important ingredient to curing the recession. Banks are currently sitting on about $850 billion in reserves, this just at the Federal Reserve. That money needs to be at work in the economy. Banks should be able to reduce those reserves to $200 billion without any adverse impact in Mr. Pollins estimation. You seen as late as 2007 banks only had $21 billion in cash reserves. This clearly explains the overreaction banks have had to the current crisis. We need that $650 billion loaned out at a reasonable rate to support both large and small businesses. I recently had lunch with one of my friends in the banking business who was lamenting about their own bank’s loan management rather than working out reasonable rates with troubled borrowers. Instead the banks management had been increasing the commercial loan rate to 8% and more for troubled borrowers. This is totally unreasonable and will do more harm than good in the long run. This kind of banking practice just keeps borrowers in trouble rather than helps them get back on track. This activity will also harm the bank in the long run…because it will keep the loan from returning to a current payment status and the bank will eventually have to charge off more and more principal from the loans that they handle in this irresponsible manner. There is not a need in this environment for commercial loans to be beyond 5% to 6%. Mr Pollin believes the Fed should push the business borrowing rates down to 3% to 4%. Anything beyond those rates is simply price gouging.

As money is released into the economy from the public and private sectors more jobs will be created and each 1% drop in the unemployment rate will generate an additional $90 billion in government revenues or reduced spending obligation according to Mr. Pollin. When jobs are lost the government loses revenue and is subject to additional spending to support the unemployed. Because when people get jobs they begin to support themselves (reducing the need for unemployment pay and food stamps) and they begin paying taxes.

Another way we can really help ourselves is to get serious about energy conservation. If you go back and review the 1980 recession most of the cause was linked to inflation. During that past economic contraction OPEC and the oil companies doubled the price of oil in a time period of just two years (1979 & 1980). To release ourselves from the clutches of Middle East oil prices will not only help us reduce greenhouse gases, it will pay another benefit in making the need for military intervention less likely to be necessary. The end to Middle East military action would reduce our national spending by $300 billion. But the real benefit to energy conservation is at least two fold. First, it creates jobs…lots of them. Secondly, the energy saving puts more money in the pocket of consumers. The more customers you have and the more money they’re willing to spend the more money everyone makes. According to Mr. Pollin, there are about 24 billion square feet of public building (hospital, schools, & government offices). Retrofitting these offices with new energy conservation measures would cost about $150 billion. “If we assume this program is implemented over three years, at $50 billion per year, this would generate about 800,000 jobs PER YEAR over three years. These actions are an efficient source of job creation, since all the work must be done within local communities, and a large proportion of the budgets go to hiring workers, as opposed to buying equipment, land and energy.” That’s just the public side of retrofitting. The private side could offer even more of a catalyst for energy efficient retrofitting. Mr. Pollin estimates “the potential market for private retrofits for commercial and residential buildings is in the range of $650 billion. If even 20% of these buildings were retrofitted by the end of 2012, it would create another 800,000 jobs PER YEAR.” Not to mention the potential for job creation in building wind turbines, newly designed batteries for the renewable energies, electric cars, solar panels for both industry and residential use. The growing market for conservation and new green energies should put construction workers, and new technology workers back to work in droves. And the creation of jobs has a compounding effect…more people working requires more jobs to support their ancillary needs. This means more grocery store jobs, more department store jobs, more realtors, insurance agents, and more constructions jobs.

The creation of additional jobs by infrastructure building will create even more jobs while improving our roads, bridges, schools, and parks. The federal government shouldn’t be shy about helping state governments either. State governments, county governments, and municipalities make up about $2 TRILLION in annual spending…14% of the GDP according to Mr. Pollin. This occurs through purchasing and generating jobs…approximately 30 million jobs are either directly or indirectly related the state and city governments.

As you can see…there is plenty that both public spending and private spending can do to help us return to more normal economic times. Certainly tax incentives could be helpful…but, there is a significant lag to creating jobs with tax initiatives. In the meantime, we won’t get better unless we help ourselves. Deficit hawks have their place. In fact, it would have been nice to have them at the turn of the century. It would have been nice to have had a full throated debate about going to war in Iraq and imprudent tax cuts for the very rich. But, as I’ve mentioned before on this blog…being a deficit hawk during this time of deep recession is a bit like being a water conservationist while your house is on fire. Our first objective needs to be to get the unemployment down from the current rate of 9.7% to 4%. Once we achieved this we will be in an advantageous position to make spending corrections.

All this said…health care cannot be separated from our financial fate. We have got to cover everyone, and hold cost down. If you haven’t noticed…insurance companies are the problem not the solution. They add absolutely no value to the healthcare of our country and its people. They take 30% of the dollars paid into the companies in the way of premiums and spend it on lavish salaries for their executives, wasted expense on thousands of staff to serve no purpose other than denying claims, and then ridiculous profits. For that 30% that they take off the top…we get nothing. Not one person is treated, nor life saved. Medicare and Medicaid both have operating expenses of less than 3%. Doctors will also tell you that they have to spend unfruitful time, energy, and money on their staffs as well…to fight the insurance companies. This issue cannot be separated from our fiscal well being and it’s foolish to claim we can’t afford to fix the problem. The fact is…we can’t afford NOT to fix the problem.

If we use the best of capitalism and socialism we can be the better for it. After all…this is America, the greatest country on the face of the earth, the sole remaining superpower and the richest of all countries. We can hit from the right and the left. It’s silly not to fully utilize our societal skills.