BEWARE VICTORY!

Advisory Note to the GOP

You know the old saw: “Beware of what you wish for.” We Republicans wished for a sweeping victory. We got it, nationwide. Now we need to govern.

Yet, “to govern” presents a high hurdle. For the problems to be faced and resolved are not only complex, they are wickedly so. The odds of failure over the next two years are high. As an economist, let me say that the odds are also high that the economy will be little better two years from now than now. Incomes will still be low and unemployment still unacceptably high.  For the economic grist for the GOP campaign mill -- “cut spending, reduce taxes” -- is not up to the challenges of our troubled economy. Thus, it is likely that another wave of resentment to “throw the bums out” will emerge during 2012. The “bums“, however, would be Republican bums, as in ‘06.

So what’s to be done so the Republicans can take some credit for economic revival, jobs’ creation and unemployment reduction over the next year or so? After all, we were largely correct in our claims that Osama’s “stimulus” has failed. Pure government spending, as if government is a productive sector, is largely waste from the standpoint of what are the three prime drivers of economic growth and development -- entrepreneurship, innovation and productivity. Yet, there is potential that government spending might have positive impacts to the extent that it: (1) is not “pure” but rather directed to spurring the latter three and (2) provides incentives to private sector investment spending.

Several guidelines, advisories or suggestions emerge from this line of thinking, as follows.

ü      Think long term. Try to put aside the inevitable temptations of Members of Congress  to look for stimuli in the form of “quickies”. This advisory implies major job-creating public infrastructure projects in the areas of transportation, science and technology, water, renewable energies and the environment.

ü      Raise productivity: With the help of people from business, labor and the inter-disciplinary research community, formulate and implement a strategy to foster productivity improvements.

ü      Spur entrepreneurship and innovation: For example, see my “Strategy to Increase Entrepreneurship and Innovation…” Note that 64% of net new jobs arise from science or technology-based enterprises no more than five years old.

ü      Consider a carbon “tax” [actually, a fee on emissions of carbon pollutants]: This is a market-perfecting device that provides real incentives for accelerated development of renewable energy sources. “Real” means prices that account for the external costs of our over-dependence on carbon fuels. Remember what happened in the ’70’s when the price of oil declined? -- Conservation efforts were canned and renewable energy projects went by the boards. Our dependence on foreign oil has been increasing ever since. Regional Greenhouse Gas Initiatives like that in New England have demonstrated that a few cents’ increase in electric power bills provide millions of dollars’ worth of investment in renewable energy. Part of the fee’s yield could also help to reduce governments deficits.

ü      Remove regulatory impediments to entrepreneurship and innovation at all levels. 

These sorts of initiatives call for significant communication, cooperation and collaboration [3Cs] between the executive and legislative branches of our government, giving new life to bipartisanship. Without such new life, those of us who look forward to a new Congress to “get things done” will be sorely disappointed. The most significant threat, however, would be to the economy. As a commentator in “Moneynews” remarked online on election day in an article entitled “Gridlock in Congress Will Threaten Economy“:

              “A standoff between the Obama administration and emboldened Republicans will probably block any new help for an economy squeezed by slow growth and high unemployment.”

If the old political power and ego games reign in the new Congress, we all lose. There is a lot more at stake than Congressional egos. Let us hope that the 3Cs approach can prevail.

The new Republican-dominated Congress, for example, should be open to supporting President Obama’s new $50 billion dollar “Stimulus II” package -- to the extent that its transportation and any other infrastructure projects help to improve productivity as well as provide jobs.

The 3Cs, therefore, amount to a basic guideline for the new Congress. The great American majority of “We the People” expects their elected and unelected officials to work together for the good our country. That is the main challenge. That is primarily “What’s to be done.”

            PETER BEARSE, Ph.D., International Consulting Economist, 11/3/10. Send questions or feedback to pjbearse@gmail.com or by way of a call to 382-8079.