Economic Growth

Speech by Douglas Rediker
May 1, 2009 - Truman National Security Project - Washington, DC

Green-shoots and optimism aside, let's agree that no one really knows how the economic crisis will play out or when it will end. There are those who believe that we have reached the bottom and others who believe that we have only reached a "temporary bottom."

But one thing is certain - from a foreign policy perspective, the current crisis is likely to be a driving geopolitical force for a long time...

A flurry of issuances amid unexpectedly robust demand has transformed a once-obscure component of the federal stimulus legislation into the hottest bond since Daniel Craig in Quantum of Solace.

The University of Minnesota, the state of California, the New Jersey Turnpike Authority, and the New York Metropolitan Transportation Authority are among the first issuers of Build America Bonds, a new class of municipal bond authorized by the American Recovery and Reinvestment Act that could transform how America finances its 21st century infrastructure needs...

If you want to understand why the credit crisis has evolved into such a widespread economic malaise, then there are a few relationships that you should keep in the back of your mind.

The first is personal savings rate vs. household debt. Long story short, the past twenty years has seen less saving and more debt (see graph below; click for full-sized version. Also note that you should use the left-hand Y-axis for personal savings rate values and the right-hand Y axis for household debt). These two developments are obviously related: the fewer savings you have, the more likely you are to go into debt...

In recent years Americans have witnessed the unraveling of the social contract--the public and private arrangements that enable Americans to create secure, prosperous lives for themselves and their families. This problem goes beyond the credit crisis that catalyzed the current recession, to long-term developments that threaten economic opportunity. To illustrate the changing nature of the American social contract, I've put together a pack of charts and commentary which present an overview of the ways in which economic opportunity ties into the genealogy of our current crisis. The sad message of this analysis is that the social contract as we know it has been unraveling for decades; but the good news is that this transition provides us with a rare chance to redraft a new and better contract for American families and workers...

In his first appearance before the House Transportation and Infrastructure Committee, Secretary of Transportation Ray LaHood (a former member of that committee) today outlined his department's plans to roll out $48bn in new spending as part of the American Recovery and Reinvestment Act of 2009. 

Committee Chairman James Oberstar and Ranking Republican Member John Mica praised LaHood--who cut a genial and confident figure in the hearing room--as a steward of accountability and a forward-thinking leader on transportation policy. "Your seriousness of purpose is very reassuring to me, and should be reassuring to the American people," Oberstar remarked...

There are a small but growing number of people who think that China can sustain a recovery and may even help pull the world from a recession. Although they may be right that the Chinese government can sustain stable growth through policy loans in the short-run, they may end up disappointed by the end of 2010.

Many were optimistic last summer when they thought China could "decouple" from the United States and sustain growth even as the world fell into a recession.

Over the fall, many came to the conclusion that the divergence of China and US growth was impossible, not only because the downturn in US housing was becoming a consumer recession but also because ties in trade and capital would cause the world to unravel...

Illinois is at the center of the nation's road, rail, and air networks, and Chicago's reputation as a hub for infrastructure innovation is unrivalled among major American cities. Now, the Land of Lincoln finds itself at the crux of the debate about financing America's 21st century infrastructure needs.

As the recession has worsened, a considerable share of public and media attention has gone toward what you might call the "falling titans." By this I mean the affluent, educated demographics facing economic insecurity for perhaps the first time in their lives, and the once-heralded giants of finance now being blamed for our current mess.

Both parties are favorite topics in media coverage. It seems that every day there are stories about laid-off bankers being "humbled" into finding new jobs, corporate lawyers receiving $80,000 to take a year off from work, and the reduced bonuses of Wall Street bigwigs. At the same time, the press constantly harps on the outrageous excesses of the greed-is-good crowd, such as John Thain's $35,000 commode, JPMorgan purchasing a private jet hangar, and of course the infamous AIG bonus pay-outs...

If the President's announcement that he would order his cabinet to find $100 million in budget savings within 90 days was meant as a response to the anti-spending "tea parties" it was, as they say, pretty weak tea.

It seems strange that the media savvy Obama administration would kick off what should be a series of announcements demonstrating their budget cutting bona fides with this decidedly small bore effort. It has invited the obvious comparisons between the amount that the President is demanding in cuts and the size, for example, of his overall budget proposal for FY 2010. For the record, the cuts would represent approximately 3/100,000 of a percent of the Obama spending plan(excluding stimulus and emergency spending). And this at a time when the federal deficit, as a percentage of GDP, is again surging...

As a candidate, Obama was pretty good at making the case for high speed rail, as he did last August 5th in Youngstown Ohio:

"...by the time you get to the airport, take off your shoes, get to the terminal, realize that your flight's been delayed two hours, go pay $10 for a cup of coffee, and a sandwich for another $10, come back, you get on the plane, you're sitting on the tarmac for another 25 minutes, you finally take off, you're circling above the city for another half hour, when you land they can't find your luggage, and then you get to where you're going - by the time it's all done it's a five-hour trip! ...So the time is right now for us to start thinking about high-speed rail as an alternative to air transportation, connecting all these cities and think about what a great project that would be in terms of rebuilding America."

Following through on that campaign promise, President Obama, accompanied by Vice President Biden and Transportation Secretary LaHood, has just released a strategic plan for rebuilding existing rail infrastructure as well as new high-speed passenger services...