Comments from Jeff Madrick on 'An Economic Recovery Program for the Post-Bubble Economy'

Jeff Madrick is the editor of Challenge Magazine and director of policy research at The New School's Schwartz Center for Economic Policy Analysis. Click here for the full text of the article in question; or here for the comments of Rob Atkinson, founder and president of the Information Technology and Innovation Foundation.

I endorse wholeheartedly the thoughtful initiatives proposed by Bernard Schwartz and Sherle Schwenninger. The American economy is in more profound trouble than is realized, even talking into account the current credit crisis. Too much has been neglected for too long.

The first step for America is to recognize that the economy is in danger of collapsing into a serious recession. Inflation hawks at the Federal Reserve are dangerously incorrect. Recession is the far bigger danger. It is important, then, that the Federal Reserve not reverse policy to subdue what is likely to be a passing inflationary episode.

A second fiscal stimulus package is also required, but infrastructure investment should now have a central place in it. Rebates and even expanding unemployment insurance are not enough. Jobs must be created in the nation.

Gross neglect over a generation has made urgent the need to repair and modernize the nation’s transportation, water systems, airport capacity, and electric grid. The preponderance of academic research now shows that investing in infrastructure will both promote economic growth and create domestic jobs. Like the person who doesn’t repair his or her house, the deterioration is so gradual that it goes unnoticed until the pipes actually break, water gushes through the roof, and the electrical system burns out. Figuratively speaking, America’s pipes are about to burst—a few, as we know, have.

A call for infrastructure investment also requires detailed analysis of priorities. Schwartz and Schwenninger did not have space to address these issues. Most important, transportation, energy use, and carbon emissions must be dealt with simultaneously. Green infrastructure is not merely a romantic fancy. To accomplish this, the Departments of Transportation and Energy, as well as urban planning duties of HUD, should be merged and a policymaker with major status, such as Schwarzenegger, Rendell, or Bloomberg, be appointed to run a new mega-agency. Transportation, energy and urban policies cannot be made separately any longer.

Schwartz and Schwenninger also address admirably the need to promote markets abroad. This is an important subject involving demand-led growth concepts, which today’s mainstream economic theory sidesteps, and requires more space to address than is available here.

But there are two still higher priorities. Because America spends so much for healthcare, and because it is tragically inefficient, reforming it should be our first priority.

There is no mystery about the kind of universal healthcare plan the nation needs. Resistance is political and ideological, not pragmatic. A good answer is Medicare for all, with adequate federal authority to influence pharmaceutical costs, create incentives to utilize efficient medical methodologies, and support medical research and education. Medicare’s administrative costs are one tenth the administrative costs in the private sector.

The McCain proposal to create private health savings accounts will in time be a tragic failure that will make healthcare more unequal than it is today and no more efficient. Obama’s program to support a public insurance system from business contributions and with subsidies for poorer workers is a useful step in the right direction.

The second priority is to make America the high-wage nation in the world again. Can this be done in light of global competition? I think so. Infrastructure investment will help. But there are two other battles to wage.

First, education matters, but some economists have so over-stated and over-simplified the issue that we must be clear. Unequal education cannot account entirely for the nation’s wage inequality, but it is partly responsible. It is also critical to the nation’s future productivity. America needs a vigorous pre-k education program, serious efforts to equalize the quality of k-12 throughout the nation, and adequate aid to meet the skyrocketing costs of college.

But education is not enough to raise wages adequately, nor is infrastructure investment. There is now ample evidence that a low minimum wage, policies that undermine union organizing, and the sheer lawlessness of business in abiding by labor laws have added significantly to unequal and low wages in America. Illegal disregard of minimum wages and maximum hours laws, gender and racial discrimination prohibitions, and the rights to organize unions is now common. We need higher minimum wages, serious attention to living wage programs, union organizing protections, and far better enforcement of existing laws.

It is worth noting that had wages for typical workers risen as usual in the economic expansion of the 2000s, some or even much of the mortgage default crisis may have been avoided. A typical worker would have earned $3000 more a year, or $250 a month. That would have saved a lot of homes.

All this assumes that intelligent re-regulation of the financial community is undertaken, also a high priority. America needs robust government, in which the people have faith.