ConferenceClick the logo for video and other resources from the 2009 "Thinking Big, Thinking Forward" conference.
It’s time to look ahead. The need for a bold recovery plan to address the accelerating downturn understandably consumes Washington’s attention. Nonetheless, the challenge of getting the economy growing again, though vital, is not sufficient. Our response to the crisis must plant the seeds for the new economy of the future.
We must not, once we pull the economy out of recession, return to business as usual – a high-consumption, low-wage economy based on asset bubbles and foreign borrowing. That strategy was never sustainable and is no longer available.
A sustained recovery will require a dramatic change of course – and a dramatic change of priorities. We must make the investments vital to a dynamic economy able to sustain a broad middle class in a global economy. This requires investing in the public goods that are the foundation of a healthy society and a dynamic economy – from a 21st century infrastructure to world-class public schools. We need to curb short-term private speculation and bolster long-term public investment.
The crisis forces us in that direction. And the Obama administration has wisely offered up a plan – The American Recovery and Reinvestment Act Of 2009 – that would make an $800 billion down payment on vital investments, from clean energy to public schools, which can and should be sustained for the future.
We should begin with infrastructure, the backbone of the economy. Much of our infrastructure dates from the World War Two era; many of our water pipes were laid in the 19th century. We need to rebuild our transportation infrastructure for rail lines and mass transit. We need to rethink our energy sources to move away from polluting technologies and destabilizing dependence on foreign oil. Finally, we need to return attention to our people, the ultimate resource. We need quality daycare for the young – with professional salaries and standards – and guaranteed, affordable health care for everyone.
Deficits in Perspective
One concern that constrains our thinking is, of course, the federal budget deficit. The word has “deficit” become a stand-in for words like waste and irresponsibility – so running a deficit is nearly synonymous with irresponsibility, rather than an economic variable to be taken into consideration among many others.
The U.S. annual budget deficit is likely to exceed $1 trillion next year, a stunningly large number. Measured as a percentage of GDP – that is, in proportion to the size of the economy – a $1 trillion deficit appears more manageable. The question really is one of scale. Are we going so far in debt that we can’t dig out?
In fact, our debt is not extraordinary by historical or international norms. Scott Lilly of the Center for American Progress and former director of the Joint Economic Committee, points out that a $1 trillion federal budget deficit in 2009 “would push the public debt – even after the profligacy of the Bush years – to about 47 percent of GDP, and a $2 trillion-dollar deficit will push it to only about 53-percent levels — only a few percentage points above where it was in the early 1990s.” This is lower than most advanced industrial countries – all of whom are raising their deficits now also. France’s public debt is 67 percent of its GDP; Canada’s is 64 percent. Japan sets the scale at 182 percent.
Large deficit spending to make sensible investments to put people to work in this crisis, therefore, is both necessary and affordable. In the long term, of course, sustained expansion of public investments vital to our future will have to be paid for. That will require new priorities – squandering fewer resources on policing the world and subsidizing agribusiness, for example. Progressive tax reforms would also be a good start – closing loopholes, collecting unpaid taxes, taxing income on wealth at the same rates as income on work. We can afford to make these investments. Indeed, it will cost us much more – in economic inefficiency, a poorly educated citizenry, lost markets – if we do not make them.