“Now is an opportunity we have not had in decades”
These are the words of Robert Reich, Obama economic advisor and former U.S. Secretary of Labor, who I heard speak today at the Commonwealth Club of California. He was a very effective communicator. He warmed the crowd with humor, previewed his key points, used language that could be understood by non-finance people, and had a strong conclusion. In addition to me watching his speaking techniques, I found the content compelling. I will share a few of his key points and then return to the blog title quote, which was his conclusion.
The U.S. lost $7 trillion in assets in 2008. Ouch. The dominant theory is that this recession was caused by the housing bubble crash, but actually it has been coming for a long time as U.S. median (not average) household income has stayed steady or declined since the 1970s. To compensate, U.S. households have 1. made both parents work 2. worked longer hours 3. gone deeper in dept, primarily by using houses as collateral. The irresponsible lending of American financial institutions allowed Americans to go too deep in to debt. Then the housing market crashed. People could no longer consume at the level of production, leading to recession.
How do we get out? Three areas of aid: Federal Reserve, TARP, and Stimulus. The Federal Reserve is helping by lowering interest rates and by buying distressed assets. TARP is supposed to be helping by stabilizing the financial institutions such that consumers can get loans. But, the first half of the $700 billion seems to have gone to executive pay and shareholder dividends and is not trickling down to the average consumer or “main street.” Hopefully the second half will have more requirements such that “main street” actually benefits. The stimulus needs to be $900 billion over two years and help rebuild American infrastructure.
This is the good news getting back to the quote – we have the opportunity now to regain American excellence by investing in areas that benefit the entire public, but don’t benefit any one company enough to be financially feasible. These areas include differed maintenance of physical infrastructure; building of broadband networks; improvement of medical information technology; creating renewable energy alternatives; and improving education and healthcare. The U.S. can borrow relatively cheaply (via TBills) and then spend the money to improve the country while putting people back to work. This is the opportunity we’ve not had in decades, and the good news according to Robert Reich.