Moving from the Recession to Growth & Competitiveness

One of the best analyses of the causes of the recession and how we can return to health has been written by three authors under the auspices of the New America Foundation (a non-partisan, non-profit, public policy institute with Newton’s own Atul Gawande serving as a Board member). Look to your right for the link – it’s long but worth the read.

The authors point to three primary causes for the recession:

1.       - Debt-Deflation: We borrowed against the inflated values of our homes and now face a significant debt overhang

2.      -  Excess Global Supply: In Asia, there has been an emergence of export-oriented, high savings, low wage countries that has resulted in excess supplies of labor, capital and productive capacity in the US

3.      -  Stagnant Wages & Increased Levels of Income/Wealth Inequality

Two of the important solutions:

1.       - Significant public investment in public infrastructure (energy, transportation, education, R&D, water treatment) to put people to work and to lay the foundation for a more efficient and cost effective national economy

2.       - Comprehensive debt restructuring, especially in banking and real estate

States, Cities & Towns: Going Bust?

Check out the article to the right by Michael Lewis on the financial issues facing states, cities and towns. (Yes, this is the Michael Lewis that wrote The Big Short, Liar's Poker, Moneyball, and The Blind Side.) His level of anxiety is captured in the quote below:


"From 2002 to 2008, the states had piled up debts right alongside their citizens’: their level of indebtedness, as a group, had almost doubled, and state spending had grown by two-thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion. In response, perhaps, the pension money that they had set aside was invested in ever riskier assets. In 1980 only 23 percent of state pension money had been invested in the stock market; by 2008 the number had risen to 60 percent. To top it off, these pension funds were pretty much all assuming they could earn 8 percent on the money they had to invest, at a time when the Federal Reserve was promising to keep interest rates at zero. Toss in underfunded health-care plans, a reduction in federal dollars available to the states, and the depression in tax revenues caused by a soft economy, and you were looking at multi-trillion-dollar holes that could be dealt with in only one of two ways: massive cutbacks in public services or a default—or both. Whitney thought default unlikely, at least at the state level, because the state could bleed the cities of money to pay off its bonds. The cities were where the pain would be felt most intensely." 


A few other issues that Lewis explores: "Everywhere you turn you see Americans sacrifice their long-term interests for short-term rewards....What happens when a society loses its ability to self-regulate, and insists on sacrificing its long-term interest for short-term rewards?"