ECONOMICS PROFESSOR, BOSTON UNIVERSITY
Thanks to his victory, President Obama faces a more compliant Republican House of Representatives. But even dictatorial powers wouldn’t give him a magic wand for kick-starting the economy.
Yes, the president, with Congress’ approval, could hire all the unemployed or bribe the private sector to do so. But there’s no money. Our government is flat broke. Printing even more money — the Fed has printed tons — risks hyperinflation.
Indeed, while everyone is panicking over the so-called fiscal cliff, the country is already in fiscal free fall. Its official liabilities are growing at a tremendous clip.
The true abyss is just around the corner — the full retirement of 78 million baby boomers, each of whom have been promised, on average, $40,000 (in today’s dollars) annually in Social Security, Medicare, and Medicaid benefits. These expenditures, if not immediately curtailed, would make our country the fiscal basket case of the developed world.
Funny how little honest mention this massive problem received in all the rallies and debates. Well it’s there — a ticking time bomb strapped to our country’s lap. Fixing it — not repealing next year’s relatively small tax increases and spending cuts — must be the president’s first priority.
Doing so requires something the president hasn’t done — level with the public. He also needs to propose radical reforms of our social insurance institutions, reforms that provide universal social protection but within a rigid, affordable budget.
I’ve laid out such reforms, which I call The Purple Plans (www.thepurpleplans.org), because they’re designed to appeal to both red and blue Americans. Their adoption would dramatically improve the long-term investment climate.
The Purple tax plan replaces our current system with progressive consumption, payroll, and inheritance taxes. The plan hits up the idle rich, but lowers tax burdens on workers, particularly low-wage workers. It will raise significantly more revenues, yet still provide better work and saving incentives.
Best yet, the reform has a guaranteed and very big job kicker — the repeal of the corporate income tax. This may sound like a sop to the rich. It’s not. The real beneficiaries will be American workers who will find more foreign and US companies investing here and, thus, bidding for their services. Unlike the supposed benefits of cutting capital gains taxes, this isn’t voodoo economics.
My bottom line? The president needs to get real, get some new ideas, and get a move on.
Laurence J. Kotlikoff is a William Fairfield Warren Distinguished Professor and Professor of Economics at Boston University. He is author or coauthor of 14 books including “Jimmy Stewart is Dead,” “Spend ’Til the End,” “The Healthcare Fix,” and “The Coming Generational Storm.” He holds a PhD from Harvard University.
LEONARD A. SCHLESINGER
PRESIDENT, BABSON COLLEGE
To get companies spending again, President Obama and Congress must restore a level of predictability in the economic environment. With little difference in the political makeup of the current and next Congress, work should begin today. Why? When faced with extreme uncertainty, business responds by sitting on the sidelines.
The most important way to remove this uncertainty is to enact a deficit reduction plan similar to the bipartisan Simpson-Bowles proposal. Crafting a solution that balances spending cuts and revenue increases is essential to accelerating the growth of our economy.
Such a plan would enable us to make a commitment to our long-term future by rebuilding the infrastructure of a productive economy — cities, transportation, and education. Otherwise, the economic pressures and rhetoric around deficit spending, and the inability to raise revenues, will continue a scenario where the things we expect as citizens will increasingly become private goods available only to a privileged few. When I was vice chairman of a $10 billion retail company, it was clear to me that the long term is discernibly different from an aggregation of short terms. We simply can’t address short-term issues and expect that long-term issues will resolve themselves.
We also need immigration reform to take advantage of the economic potential of talented students from around the world. Immigrants have played a leading role in the technology enterprises at the core of high-growth industries. Indeed, the power of immigrants to stimulate innovation and new business development is central to job creation that benefits all Americans. The president and Congress should make it easier for immigrants who earn degrees at American universities to remain here to start and grow their businesses.
At the same time, President Obama and Congress should focus on policies that are conducive to rapidly growing enterprises. Small businesses are important to providing employment. But in order to create jobs at a faster pace, we need policies that encourage the gazelles — the high-growth segment of small business at the nexus of economic development and job creation.
Finally, while the president and Congress must work together to fix the economy, it is up to President Obama to lead as “the great communicator.” This is his last and best chance to mobilize the country to reject the current political paralysis and move us toward a more predictable environment that gets business off the sidelines.
Prior to becoming Babson College’s 12th president, Leonard A. Schlesinger was vice chairman and chief operating officer of Limited Brands Inc. of Columbus, Ohio, and executive vice president and chief operating officer at Au Bon Pain. He taught for 20 years at Harvard Business School, where he was the George Fisher Baker Jr. Professor of Business Administration.
LISA M. LYNCH
DEAN OF HELLER SCHOOL FOR SOCIAL POLICY
AND MANAGEMENT, BRANDEIS UNIVERSITY
The biggest challenge we face is our deficit — but not just the fiscal one. Yes, Congress needs to move quickly to establish a credible plan to stabilize the debt over the next decade. A plan that produces $2 trillion in deficit reduction, phased in so that it does not throw us back into recession, would give us breathing room to tackle the longer term problems of ensuring retirement security for an aging population and stemming the unsustainably high growth of health care costs.
But the other major deficit, made worse by this recession, is our opportunity deficit. This deficit goes far beyond the 9 million new jobs we need to bring the unemployment rate to where it was before the recession began.
It includes the lack of opportunity for workers to find jobs that pay wages and benefits that can support them and their families. It includes nearly 3 million workers who work full time, year round, and still do not earn enough to get out of poverty.
It is median wages that have not risen in spite of increasing labor productivity. It is the 46 million people living in poverty, including one in five of our children. It is the racial and ethnic disparities such as unequal access to quality early child education. It is the 15 percent of our youth who are not in school or employed. It is young people who have grown up in the United States but who cannot receive in-state tuition for public education because their parents are living here as undocumented immigrants.
Any effort to tackle the fiscal deficit that does not simultaneously address the opportunity deficit will undermine the long-term potential of our economy. This means that any grand bargain should not extend the payroll tax cut but instead use that money to support research and development, and help fund 21st-century rail, air, Internet, roads, bridges, and public safety systems.
Until the economic recovery takes hold, we need to help states keep teachers in the classroom, provide access to early child education, and expand training programs for workers who need new skills. To support working families whose wages have stagnated, we need to maintain refundable tax credits such as the Earned Income Tax Credit, the Child Tax Credit, and credits for college tuition.
Most important, we need a social compact so that workers share in the increase in their labor productivity instead of seeing their wage and employment prospects stagnate.
Lisa Lynch, dean of the Heller School for Social Policy and Management and Maurice B. Hexter Professor of Social and Economic Policy at Brandeis University, served as chief economist at the US Department of Labor from 1995 to 1997. She has taught at Tufts University, MIT, Ohio State University, and the University of Bristol and holds a PhD from the London School of Economics and Political Science.
PROFESSOR OF GLOBAL ECONOMICS AND
MANAGEMENT, MIT SLOAN SCHOOL OF MANAGEMENT
American stock markets are not what they used to be. There was a time when small investors were treated in a reasonable manner and the playing field was relatively even.
Those days are long gone. Now the markets are dominated by high speed traders running massive computer systems.
Corporate governance failures abound — look at how long it took Citigroup’s board to get rid of Vikram Pandit, an overpaid chief executive during whose tenure Citi’s stock price lost more than 90 percent of its value. Meanwhile, Jamie Dimon — head of JP Morgan Chase, a “too big to fail bank” — sits on the board of the Federal Reserve Bank of New York, an institution that is the eyes and ears of the Federal Reserve on Wall Street.
There is plenty of capital on the sidelines in America — capital belonging to small investors from the middle class.
The stock market has lost its allure. It’s time to clean house and entice investors to put more equity capital into productive enterprises.
This will help make it easier for existing firms to fund their expansion plans. More important, it will increase the capital available to new start-ups.
The possibility of an initial public offering for a successful company helps to motivate a great deal of smart risk-taking in America. Sometimes your idea may work and sometimes it will fail — but without strong public markets it is much harder to motivate investors at any stage of the entrepreneurial process.
President Obama should appoint former senator Ted Kaufman of Delaware to lead the Securities and Exchange Commission. That once proud agency has fallen on hard times, and someone must take charge of restoring the integrity and resilience of our markets.
Kaufman worked long and hard on these issues during 2009 and 2010.
He was stymied at every turn by Wall Street and its allies, including — shockingly — in the Treasury Department and the Justice Department. (This is documented in compelling fashion by Jeff Connaughton, his former chief of staff, in a recent book, “The Payoff: Why Wall Street Always Wins.”)
It is time for President Obama to correct the mistakes made during his first term. He should push aside the Wall Street money that helped get him reelected. Bring Ted Kaufman into government and help get the economy going again.
Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management. He is a former chief economist at the International Monetary Fund and coauthor of “13 Bankers: The Wall Street Takeover and The Next Financial Meltdown” and “White House Burning: The Founding Fathers, Our National Debt and Why it Matters to You.” He holds a PhD from MIT.