“What is critical to keep in mind is that this situation is part of a broad, multiyear process driven by national and global realignments. It's a secular phenomenon that needs to be better understood and navigated -- by recognizing its structural dimensions…. Unfortunately, the approach in too many industrial countries [and states such as Vermont] has been to kick the can down the road, seemingly hoping for a series of immaculate economic recoveries.”
Yes, I understand that this - from Mohamed El-Erian, CEO of Pimco - is a mouthful.
But, it is a mouthful that needs to be understood, especially by gubernatorial hopefuls Lt. Governor Dubie and Senators Shumlin or Racine, other Vermont legislative candidates and Vermont’s various public stakeholders and business leaders.
What we are experiencing today is nothing short of the structural changes that transpired during the 1920s through 1940s; which were followed by decades of unprecedented prosperity and growth in the United States. Today’s structural changes will not be followed by such good fortune.
The 1920s ushered in a booming American economy, followed by the stock
market crash of 1929 and followed by a multi-year deflationary period
and depression in the early 1930s. After a seeming period of brief
recovery, America fell into a “second depression,” in 1937-1938, which
was followed by America’s entrance into World War II and, emerging from
this conflict, America’s preeminence and predominance was unmatched, as
it accounted for nearly 50% of the world’s output, owned 66% of the
world’s gold, produced 80% of the world’s automobiles and had 50% of the
world’s oil. And talk of a demographer’s dream, 1946 witnessed 330
babies delivered every hour! Let the good times roll.
My, how times have changed.
Similarly, the 1990’s ushered in a booming internet-driven economy, followed by the dot-com bubble and stock market crash of 2000. This was followed by the recession of the early 2000s, the 9/11 terrorist attack and wars in Afghanistan and Iraq. Our government’s policy-makers responded to these events with record low interest rates and poorly constructed housing and other policies that helped create yet another bubble, our debt bubble…and the rest is history, as we now find ourselves rummaging through the ruins of our own, self-inflicted destruction. Pogo, the character of the long-running comic strip, may have said it best: “We have met the enemy and he is us.”
Simply put, we have lived beyond our means and the solution is to methodically manage an orderly reduction in our standard-of-living. Without such action, a disorderly reduction is inevitable.
Facing us is a deflationary debt-depression, which may be the precursor to a kind of supra-inflation economic period, as tens-of-trillions of dollars of government, corporate and household debt and unfunded liabilities ravage our economy and threaten our way of life, standard of living and even our national security. Simultaneously, emerging countries around the world are challenging our once dominant, near economic monopoly of post WWII. China, next year, will become the leading manufacturer in the world, a distinction held by the U.S. for some 110 years.
Erskine Bowles, President Obama’s Co-Chairman of his “Fiscal Commission” recently said this: “We face the most predictable economic crisis in our history. It is truly going to destroy the country from within…and it is basic arithmetic.”
Professor Carmen Reinhart, an economist at the University of Maryland and co-author of the book “This Time is Different: Eight Centuries of Financial Folly,” recently presented a paper at an annual policy symposium, organized by the Federal Reserve Bank of Kansas City. Like Mr. El-Erian’s warning of a “multiyear process,” Dr. Reinhart warns of economic turmoil that may last another decade, if not longer.
These long-term structural problems require structural solutions:
For Vermont, this means policies to promote long-term planning; moving to a four year Governor’s term and biennial budget cycles. It means policies to promote economic growth, and the enactment of pro-growth permit, tax, education and land-use reforms. It means moving to a defined contribution pension plan, ending the transfer of market-risk from state and teacher employees, to the taxpayer. Vermont’s current student/teacher ratio of 10:1 and student/adult ratio of 4.5:1 are both mispriced and unaffordable, moving to a 13:1 ratio would save some $100 million, as Vermont consolidates its smaller schools and districts. State asset sales should also be on the table.
As Mr. Bowles noted, “It is basic arithmetic.”
My, how times have changed.
Similarly, the 1990’s ushered in a booming internet-driven economy, followed by the dot-com bubble and stock market crash of 2000. This was followed by the recession of the early 2000s, the 9/11 terrorist attack and wars in Afghanistan and Iraq. Our government’s policy-makers responded to these events with record low interest rates and poorly constructed housing and other policies that helped create yet another bubble, our debt bubble…and the rest is history, as we now find ourselves rummaging through the ruins of our own, self-inflicted destruction. Pogo, the character of the long-running comic strip, may have said it best: “We have met the enemy and he is us.”
Simply put, we have lived beyond our means and the solution is to methodically manage an orderly reduction in our standard-of-living. Without such action, a disorderly reduction is inevitable.
Facing us is a deflationary debt-depression, which may be the precursor to a kind of supra-inflation economic period, as tens-of-trillions of dollars of government, corporate and household debt and unfunded liabilities ravage our economy and threaten our way of life, standard of living and even our national security. Simultaneously, emerging countries around the world are challenging our once dominant, near economic monopoly of post WWII. China, next year, will become the leading manufacturer in the world, a distinction held by the U.S. for some 110 years.
Erskine Bowles, President Obama’s Co-Chairman of his “Fiscal Commission” recently said this: “We face the most predictable economic crisis in our history. It is truly going to destroy the country from within…and it is basic arithmetic.”
Professor Carmen Reinhart, an economist at the University of Maryland and co-author of the book “This Time is Different: Eight Centuries of Financial Folly,” recently presented a paper at an annual policy symposium, organized by the Federal Reserve Bank of Kansas City. Like Mr. El-Erian’s warning of a “multiyear process,” Dr. Reinhart warns of economic turmoil that may last another decade, if not longer.
These long-term structural problems require structural solutions:
For Vermont, this means policies to promote long-term planning; moving to a four year Governor’s term and biennial budget cycles. It means policies to promote economic growth, and the enactment of pro-growth permit, tax, education and land-use reforms. It means moving to a defined contribution pension plan, ending the transfer of market-risk from state and teacher employees, to the taxpayer. Vermont’s current student/teacher ratio of 10:1 and student/adult ratio of 4.5:1 are both mispriced and unaffordable, moving to a 13:1 ratio would save some $100 million, as Vermont consolidates its smaller schools and districts. State asset sales should also be on the table.
As Mr. Bowles noted, “It is basic arithmetic.”
(Tom Licata is founder of Vermonters for Economic Health. He is running for a seat in the Vermont House of Representatives.)
So there is no confusion: Defined "Benefit" pension plan (20 and out and taxpayer pays for ever) is what we are saddled with now.
Defined "Contribution" pension plan (401K style plan)is what we want.
Ending unfunded pension plans for government employees including teachers, police, fire department and all city/state employees is the kind of structural change we need today!
David G
Posted by: David G | September 06, 2010 at 09:39 AM
Uh..not to be weird here, but the idea that we have to be #1 over China is kinda silly.
China and India together hold roughly about 2 billion the world's population. We're the 3rd most populous country in the world, but with a mere 1/3 of a billion people.
Long term, we're not going to "win" any contests based on absolute numbers. My question is what the h?ll took China so long to come up to our level of manufacturing? It's pretty not impressive if you think about it.
As it is, the US is still a world leader in innovation and will probably retain de facto reserve currency for some time.
I'm not saying we don't need to get our house in order. We do. But our national identity needs to rest on something other than unsustainable as maintaining economic dominance.
We are the first of the modern nations-states to founded on the ideal of rule for the people and by the people. There's so much more to the US than just our prosperity. It's that reason why I find Jim Roger's move to China so repugnant. If money is all he loves, than he can have it. Me, I'd be poor and free first.
Posted by: AM | September 06, 2010 at 08:47 PM