Economy

As the Presidential race nears the finish line - - with the candidates and voters both gasping for air amidst the ubiquitous onslaught of commercials on everything from lawn signs to Saturday Night Live - - there are no shortages of "new and improved" proposals for dealing with the current financial mess. Well, if politicians can constantly add to their repertoires, so can we.

Earlier this month I suggested we should consider investing in cleantech infrastructure as a way to help America (and the world) work its way out of the current fiscal crisis. That offering laid out a vision for a self-supporting revamp of our transportation system that would create jobs, wealth, and improve the environment. Here's another suggestion, this time focused on our electricity energy systems.

What do schools, fire stations, hospitals, government offices, and city halls have in common? They are all vital public infrastructure buildings and many, if not most, are pretty old. The older they are, the more likely they are to be wasting electricity. How about a National ESCO Project, where we recruit energy service companies ("ESCOs"), engineering firms, electrical contractors, builders, and others to go into these buildings and identify the outdated lighting, HVAC, elevators, and other inefficient uses of electricity? While they're at it, they could also audit water use and waste disposal.

 As Washington and Wall Street dicker over a financial rescue plan, everyone is missing the real opportunity to fix the problem. Some see the variously proposed plans as bailouts of dumb borrowers and dumber lenders, while others view it as a chance to restore liquidity to the marketplace so we can all have access to credit again, whether it's for student loans or to finance the acquisition of industrial machinery.

But when the "Great Depression" struck America more than 70 years ago, we didn't just make more money available and hope people would borrow it to jump start the economy. President Roosevelt put us back to work, building bridges, highways, schools, and water projects. All of that infrastructure has served us well over the years, although at the time it must have looked like a lot of pork barrel spending designed to keep workers off of street corners and out of soup kitchens. What if we could do something like that again, but this time, make it a build-out that had fantastic economic, environmental, and social return on the invested capital?

In 2003, President Bush spoke about hydrogen cars in his State of the Union address. Shortly thereafter, the American Petroleum Institute (API) warned that building a hydrogen fueling infrastructure that could reach all Americans would cost $140 billion. Although I'm sure the API had no reason to use scare tactics and biased estimates (well, OK, maybe I'm not THAT sure), let's assume that's an accurate figure.

The Clinton Global Initiative is coming to a close and as I sit here listening to Gordon Brown talk about the importance of the global economy and the gap between the rich and poor, I find myself also thinking about the images of Drew Barrymore, Matt Damon, Muhammad Yunus, Bono, Bill Gates, Wylclef Jean and Bill Clinton on my camera, and last nights performances of James Taylor and Yousoo Ndour's.  Waking up from my day dream, I realize that this conference could have easily succumbed to three days of a star-studded, papparazzi-riddled social affair.  And perhaps in some ways it is.  

But as I go through the notes I've taken over the last three days, I am quite pleasantly surprised by the amount of substance and the breadth of issues and innovations covered over the last three days. Indeed, I'm so impressed that I find myself at the end of this conference in 30 minutes unwilling to end my blogging on its sessions and commitments.  Over the next week, I plan to continue providing commentary on CGI sessions, issue areas and commitments. Here is a sampling of topics I plan to cover:

• Asset Building Beyond Microfinance? The Forgotten Bottom and the Missing Middle
• Rural Finance: a New Frontier for Global Asset Building?
• Technology, Information and the New Age of Access
• Energy, Climate Change and Sustainable Development: An Opportunity for Microfinance?
• Food Prices Shifting Microfinance Focus?
• CGI Commitments:  My Top 10 List

Last night, I was one among 15 progressive bloggers invited to an informal and intimate meeting with President Bill Clinton to discuss the 2008 Clinton Global Initiative, the annual massive convening of world leaders, celebs, corporate executives and progressive NGO activists to make commitments to solve some of the world’s greatest challenges. Told the meeting would last 30 minutes and to limit our questions (“if there is time for any”) to this year’s CGI commitment areas, I wasn’t expecting much more than fluffy rhetoric and quick sound bites on each of this year’s issues -- education, energy and climate change, global health and poverty alleviation.  But, President Clinton took his first question early -- “Will the financial turmoil in the United States be a distraction from efforts to advance CGI commitments?” Indeed.  This question ended up dominating an hour-long discussion of the causes and effects of the current financial crisis, and what needs to be done about it. 

Sometimes it is good to provoke an unconventional thought. I'm wondering whether Al Gore's energy speech, which Senator Obama has not yet fully embraced, could be picked up by Senator McCain to upset the curious balance between the two candidates and secure the win in November.

Let me start at the beginning. In his path-breaking address yesterday, Al Gore shook loose the bonds of political gravity and finally proposed a key element of any new American grand strategy: 100% carbon-free electricty by 2018.

Saying "100%" about anything in the context of sustainability in America is nearly impossible in Washington, but the former Vice President seems to understand what McCain and Obama have yet to fully grasp: the nation is hungry for a decisive, bold step towards a new economic engine for the United States.

Regional banks are finding it difficult to raise enough capital to fend off fears over their poor financial health. A recent report from Goldman Sachs claims banks will need $65bn in addition to the $120bn they already raised to shore up their balance sheets. Most national and global banks continue to find investors, but regional banks are struggling to secure financing and investors are convinced they are too small to receive a government bailout. Last week, IndyMac's failure will likely cost the FDIC almost 8 billion dollars.

Snapshot asks, is the FDIC's $53bn fund adequate to handle a run on regional banks?

Governor Charlie Crist hosted a Climate Summit in Miami 2 weeks ago and here are a few observations from the front row...

- In his opening keynote, Gov. Crist showed the value of leadership - - just one year ago, he challenged his state to tackle climate change and the result was a massive energy bill that will dramatically increase renewables (solar, wind, etc), improve energy efficiency (the cheapest power comes from the power plant you don't have to build!), and greenhouse gas reductions.

- Ray Anderson, founder and Chairman of Interface, a billion dollar American carpet company, told us how he had slashed energy consumption and greenhouse gases 60% in the past 10 years while doubling profits. Any doubts that we can be both environmentally and economically sustainable simultaneously were erased from the minds of 800 in attendance that night!

- Governor Arnold Schwarzenegger delivered a knock-out punch of sorts - - he said the politicians who claim they can lower gasoline prices by drilling offshore or investigating oil companies are "blowing smoke". He challenged us to do the job ourselves, by inflating our tires properly, driving a bit slower, tuning up our engines, and using other simple methods to improve MPG by as much as 20% overnight. He made other suggestions of things we can do to take our economic and environmental destiny into our own hands - - great point - - we can't wait for politicians to do it!

Housing prices continued their downward slide in April with a monthly decrease of 2.2%, a decline of 14.4% from last year's levels. In an unexpected twist, monthly home sales actually rose by 3.3%. Some optimists see this as an indication that the market is nearing its bottom and beginning to work its way through a massive glut of unsold homes as sellers cut their overvalued asking prices and buyers open their wallets to bargains. Others point to worsening consumer confidence and tighter lending requirements as evidence that April's sales figures were a statistical blip in a market that has much further to fall.

Snapshot asks, to what degree will further credit turmoil stop buyers from clearing the housing market?

Wall Street Journal - Home Sales Rise in Hard-Hit Areas
Bloomberg.com - U.S. Home-Price Index Fell 14.4% in March
Washington Post - Existing Home Sales Rise as Prices Plummet
New York Times - Home sales post unexpected April increase
Yahoo News - Home sales unexpectedly rise in April

On April 10, 2008, the House Small Business Committee held a hearing - “Modernizing the Tax Code: Updating the Internal Revenue Code to Help Small Businesses Stimulate the Economy." The Committee also issued its own report - “Seven Ways to Stimulate the Economy by Updating the Internal Revenue Code." In addition to having witness testimony online in written form, the Committee has videos on YouTube about the hearing. This can all be accessed at this summary of the hearing.

I think the ideas presented by witnesses and in the Committee's report fall into two categories:

1. Tweaks to the federal tax law to make compliance and doing business easier for small businesses.
2. Changes that reflect the fact that most of the federal tax law was written before we entered our global, interconnected, knowledge-based economy and society and thus is in need of modernization.

Examples of Category 1 suggestions:

Ideally, tax reforms, of any size, should follow the principles of good tax policy. There are many views of exactly what these principles are, dating back to at least Adam Smith in the late 1700s (and even back to Aristotle if considering "fairness" in general - "equals should be treated equally and unequals unequally"). Most of the lists are fairly similar (see this chart for an example).

A while back I came across a 1967 report of the Ohio Tax Study Commission that included a principle to follow in its work that we don't often see. It ties well to the point of the 21st Century Taxation Blog. The extra Ohio principle was:

"Relationship to the Modern Economy

Insofar as possible, a tax or tax structure should be capable of growing with the economy of the state and should be revised from time to time so as to correspond with the true makeup of that economy as it develops and changes. Some products, habits of consumption, and classes of enterprise decline, while others rise to take their place. Ideally, a tax structure should be reviewed and revised as necessary so as to bear a relationship to the way people are doing things, regardless of whether additional revenues are needed at a given time."