In a recent article in the The Huffington Post, economist Jeffrey Sachs confirms what many of us fear—that we could be facing a double-dip recession. But he has some positive ideas about how to turn our economy around. He recommends a new approach to recovery, one that transcends the current polarized debate about austerity to bring down the deficit vs. stimulus to boost consumer spending. According to Sachs, we need to move our attention to “long-term investment in physical and human capital as the proper way to sustained growth.”
Sachs points out that the Obama administration’s short term approach, driven by the two-year election cycle, has been to aggressively promote car and home sales, through rebates and tax incentives to increase consumer spending. But exhausted and anxious consumers are choosing to save and pay down debts—that is, if they are not unemployed and burning through their savings. The stimulus, although successful in stemming job loss and improving infrastructure, was half of what it needed to be. Overall, Sachs feels the administration’s interest in boosting long-term investment has been haphazard at best.
“At a time when China is building hundreds of miles of subway lines, tens of thousands of miles of highways, a couple of dozen nuclear power plants, and a network of tens of thousands of miles of high-speed intercity rail lines, the US struggles to launch a single substantial project. China saves and invests; the US talks, consumes, borrows, and talks some more. . . .Businesses, for their part, are distressed by the lack of direction “
According to Sachs, both Republicans and Democrats are guilty of “irresponsible short-termism” and lack of forward thinking. He offers a proper US investment recovery plan that has five parts:
- A significant boost in investments in clean energy and an upgraded national power grid. These should be promoted through guaranteed price subsidies to clean energy to be financed by gradually rising carbon taxes, as the clean energy capacity comes on line during the coming decade. The alternative cap and trade system is cumbersome, unnecessary and politically dead.
- A decade-long program of infrastructure renovation, with projects such as high-speed inter-city rail, water and waste treatment facilities and highway upgrading, co-financed by the federal government, local governments and private capital. Such projects are complex, requiring government leadership in land management, project design, public-private co-operation and partial subsidy or credit guarantees. New tools can help, such as a national infrastructure bank — championed last year before plans were strangely downplayed.
- The third component is more education spending at secondary, vocation and bachelor-degree levels, to recognize the reality that tens of millions of American workers lack the advanced skills needed to achieve full employment at the salaries that the workers expect. The unemployment crisis is largely a structural crisis of job skills. It is hitting young workers— many of whom should still be learning —and older workers who lack a degree.
- The penultimate part of the plan is boosting infrastructure exports to Africa and other low-income countries. China is running circles around the US and Europe in promoting such exports of infrastructure. The costs are modest—essentially just credit guarantees—but the benefits are huge, in increased exports, support for African development and a boost in geopolitical goodwill and stability.
- The fifth and final element should be a medium-term fiscal framework that will credibly reduce the federal budget deficit to sustainable levels within five years. This can be achieved partly by cutting defense spending by two percentage points of gross domestic product, meaning ending the Iraq and Afghanistan occupations and cutting wasteful weapons systems. Other measures should include gradually phasing out the tax subsidy on high-end health insurance, taxing Wall Street bank profits and bonuses, raising high-end marginal tax rates and, if necessary, introducing a small value added tax. Public investment costs could be financed mainly by public tolls, gradually rising carbon taxes and by repayments of international loans to finance the export of infrastructure.
Jeffrey Sachs, is an economist and a professor at Columbia University, Special Advisor to United Nations Secretary-General Ban Ki-Moon, and the founder and co-President of the Millennium Promise Alliance, a nonprofit organization dedicated to ending extreme poverty and hunger. He has authored numerous books, including The End of Poverty and Common Wealth, both New York Times bestsellers. He has been named one of Time Magazine’s “100 Most Influential People in the World” twice, in 2004 and 2005.