OurFuture.org Blogs: Eric Lotke

Obama’s Home And The Report Is Out: China Takes Us To School

Eric Lotke — Thu, 19 Nov 2009 08:04:38 -0800

President Obama is home from China and the U.S.-China Economic and Security Review Commission today releases its 2009 report to Congress. What have we learned? That we need to pay attention because we’re getting schooled.

While Obama posed for photos on the Great Wall and talked about a relationship “at an all-time high," China continues to take our lunch money. Hopefully, there were serious back-room negotiations over currency manipulation and illegal subsidies … because if not, we’re in trouble.

Don’t take my word for it. The official, bipartisan China commission held hearings, traveled to China and received closed briefings on classified information. They reported back about expansion of the Chinese navy, China’s stepped-up espionage and cyber-warfare capabilities, and the world’s most sophisticated web filtering and Internet control systems.

But the economy is behind it all. China is quite literally eating our lunch. Since 1980, the U.S. has accumulated a trade deficit with China of nearly $2 trillion. The biggest piece of this trade deficit is in manufactured goods, once the wellspring of American prosperity. And a big piece of that comes from China subsidizing industries and manipulating currency in a way that gives their exports a competitive edge. China then takes our money and lends it back to us, creating both national indebtedness and a destabilizing excess of liquidity that helped fuel our asset bubbles.

This year's report reflects the commission's concern that despite its accomplishments and growing sense of confidence, China may be moving in the wrong direction and that this affects the U.S.-China relationship. China has yet to embrace the challenge first issued in 2005 by the United States that it become a "responsible stakeholder" in world affairs (p. 15).

The report reads like an indictment of Chinese behavior and American compliance. The most glaring problem is the subsidies.

China continues to employ a wide range of subsidies to favored companies and industries within China and to control the value of its currency and provide massive loans from state-owned banks to industries producing over capacity. This approach gives Chinese exporters a substantial price advantage in international markets and disadvantages U.S. companies hoping to export to China.(p. 15).

The report itemizes subsidies in the form of land grants, discounted electricity, and loans from state banks at below market interest rates or “without expectation of repayment” (p. 59). As a whole, the commission concludes that the subsidies and special treatment of Chinese-owned companies “violate China’s obligations as a member of the World Trade Organization” (p. 59).

The report goes on to describe export restrictions (p. 62), currency manipulation (p. 68), double-standards on domestic content (p. 52, 64) and China’s failure to enforce its laws on forced labor, child labor and environmental standards (p. 67) that were key to gaining international investment and foreign government support. The findings go far to explain why products made in China are so much cheaper than products made in America, and the incentives behind our gargantuan and growing imbalance in trade.

The report also explains how the imbalance goes beyond the trade in goods, and helped bring the whole system down. The commission places responsibility for the global economic meltdown “partially on the United States as the world's biggest spender and borrower and partially on China as the world's biggest saver and lender.” But it’s not because Chinese are inherently parsimonious or frugal. “China pursues policies that have the effect of increasing Chinese savings, restraining consumption, and keeping the RMB (renminbi) undervalued” (p. 3). The saving was as out of balance as the spending.

The imbalance extends all the way to the banks. China had hundreds of billions of American dollars, and needed something to do with them all, so they lent them back to us. “The policies that China adopted generated a huge flow of liquidity —or money that can be easily lent to borrowers — into U.S. markets. This excess liquidity created perverse incentives in the United States that encouraged banks to make risky loans to U.S. households, which in turn grew ever more indebted. High U.S. demand for imports allowed China to save even more, creating a vicious cycle and laying the foundation for the current crisis” (p. 4).

So it collapsed. The unstable structure tumbled down.

In the aftermath, the U.S. passed its own Recovery Act and led efforts for international collaboration. But what did China do? More of the same. The commission reports that China stimulated its economy by raising rebates to exporters and offering other advantages to see manufacturers through the downturn (p. 40). In the words of the Commission:

The fact that the government in Beijing is still pursuing an export-led strategy based on a wide variety of subsidies to export industries, including an RMB that remains substantially undervalued, is a cause for concern. If China continues to pursue huge trade and investment surpluses and to accumulate vast financial claims, it will hinder the necessary global economic adjustment, create excess manufacturing capacity, and lay the groundwork for the next crisis.” (p. 2)

We don’t need to watch it fall apart all over again. Cheap Chinese exports to distressed U.S. consumers are not the answer. The report advances 42 specific recommendations, from responding to currency manipulation to increasing our defenses against cyber-espionage. A crucial minimum is aggressive use of World Trade Organization trade remedies. We’ve started moving in that direction with cases on tires and steel pipes. The Commission recommends that the U.S. government preserve and use existing remedy laws “to respond to China's unfair or predatory trade activities” (p. 12).

Obviously, nobody wants to start a trade war and nobody thinks we can unwind the global economy. This isn't about protectionism or going backwards. It’s about building a global economy with agreed-upon rules of free trade that every country follows. From rugby to poker, rules make systems work. Following rules is what China agreed to when it entered the G-20 and was granted permanent normal trade relations with the U.S.

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There’s a purely domestic angle, too. Between the lines of criticism is a hidden story, implicit advice about fixing our own economy. Parts were illegal and parts were unfair, but China’s success shows how deliberate industrial policy helped it accomplish strategic goals. Indeed, a summary of China’s misdeeds reads almost like a “how-to” list for industrial policy: Subsidize strategic industries, especially energy (p. 57, 65). Enhance innovation by creating “industrial commons,” clusters of producers, suppliers and researchers in close proximity who support each other in uncovering problems and discovering solutions (p. 87). Build an infrastructure, especially on transportation, with domestically produced parts (p. 64).

Now the U.S. can’t be like China in every regard, and we wouldn’t want to be. But we might as well learn some lessons while we’re in school. As the Commission observes, “A widely shared goal in China is to make the country rich and powerful and to regain the nation’s former status as a great power that controls its own fate” (p. 56).

That’s their goal and they made a plan to achieve it. What’s our goal? How are we going to get there?

What Chinese Currency Manipulation Looks Like

Eric Lotke — Thu, 12 Nov 2009 11:15:28 -0800

As President Obama packs for China, I thought I’d show him a picture of how China is manipulating its currency.

Source: Federal Reserve: Yuan, Broad dollar index.
Graphic idea compliments of AAM.

The dollar stays flat against the Chinese Yuan, even as it loses value against other major currencies. The dollar is down to $1.50 per Euro, compared to $1.27 at this time last year (sorry to folks daydreaming about summer in Italy). It's down against the Canadian dollar, the Japanese yen and the entire "broad dollar index" tracked by the Federal Reserve. But the dollar is unchanged against the Chinese Yuan (unless one considers 6.836 to 6.827 a drop).

Everyone knows this is happening. Treasury Secretary Timothy Geithner even used the word “manipulating” with the Senate Finance Committee mere hours before it voted to recommend his confirmation.

The dollar exchange with China “defies the laws of monetary physics.” During this U.S.-led global recession, dollars aren’t worth as much as they once were. The natural physics of exchange makes U.S. goods relatively less expensive for others to buy, but makes foreign goods more expensive for Americans to buy. In a free market for currency, that would help bring accounts back into balance.

But China treats those laws as optional. China’s deliberate policy of pegging the Yuan to the dollar makes American imports of Chinese goods artificially cheap and gives American companies opening factories in China an artificial subsidy. That’s good for China but bad for America, and helps explain our soaring trade imbalance with China. An extraordinary 83 percent of America’s non-oil trade deficit is with China. During the downturn, our trade deficit with other countries has been shrinking — but not with China.

The wheels of change are starting to turn. The Obama administration stood up to China when it imposed tariffs on Chinese tires and pipes dumped in the U.S. markets. The chattering class called it a trade war, but it’s not. It’s just applying the same rules of free trade that other countries respect, and that China agreed to when it entered the G-20 and was granted permanent normal trade relations with the US. Obama just blew the whistle.

The G-20 summit in Pittsburgh in September concluded with a joint statement to seek “more balanced growth as part of the global economic reconstruction.” The entire G-20 signed on — including China — but China’s name was in bold in the quest for “balance,” and everyone knew it.

Now America’s high level trip to Asia opens with a joint op-ed written by our own Timothy Geithner along with the finance ministers of Indonesia and Singapore. They repeat the goal of “strong and balanced growth” and expressly state that “Market-oriented exchange rates in line with economic fundamentals will be essential.”

China seems to be paying attention. In its third-quarter monetary policy report, the People's Bank of China suggested that it might consider other major currencies, not just the dollar, in guiding the exchange rate. That's not quite a free market float, but it's better than the dollar peg.

In the American heartland the issue isn’t exchange rates, of course. The issue is jobs. American workers can compete dollar for dollar against Chinese workers. They can’t compete dollars against manipulated Yuans.

America's economic future is intimately tied to China's. Let’s hope Barack Obama remembers who he’s working for.

New Unemployment, Old Solutions

Eric Lotke — Fri, 06 Nov 2009 09:09:34 -0800

Today’s unemployment data contain gloomy news. Gloomy, but expected. The interpretation of the data is even worse.

First, the data. Unemployment rose to 10.2 percent last month, breaking the double digit barrier. Most people expected it to happen, though the job loss (190,000) was a bit worse than most economic forecasts (175,000). We can maybe be happy that the October job loss wasn’t as high as September (263,000), but this modest deceleration doesn’t mean much to the 15.7 million people without work, the 9.3 million people working part-time but looking for full-time, or the 3.2 million people who are discouraged or marginally attached to the work force and barely even looking anymore. Nearly 20 percent of the workforce isn’t where it wants to be.

In other words, it’s bad. You don’t need me or the Bureau of Labor Statistics to tell you that.

The interesting part is where it’s bad and what to do about it.

The biggest job losses in October were in construction (62,000) and manufacturing (61,000). In the last year, these sectors have lost over 2.5 million jobs between them. Job losses in these sectors hurt worse than most other sectors. Manufacturing jobs have a bigger economic “multiplier” than other sectors, creating more jobs and more economic activity around them. Manufacturing creates jobs “downstream,” as production workers buy sandwiches from restaurants; and “upstream,” as steelworkers and coal miners work to provide raw material. The benefits of construction obviously count for more and last longer than just the construction itself. Anybody who doesn't live in a cave knows that.

But manufacturing and construction are losing more jobs than any other sector. Health care and temporary jobs are the only positive — if we can cheer sickness or a temp job.

Source: Bureau of Labor Statistics

This isn’t just a temporary blip. Construction is sinking from the burst of the housing bubble and general economic doldrums. Manufacturing is suffering from long term structural declines and a trade policy that favors imports over domestic production.

The solution leaps out from the data. These two sectors respond most clearly to public sector investment. During this downturn, we can build roads, rail lines and bridges. During this downturn, we can fix school roofs and turn temporary trailers for overcrowded schools into permanent classrooms for eager students. During this downturn, we can build the windmills and install the solar cells to move us towards energy independence. During this downturn we can rebuild a productive economy for the future.

Source: Bureau of Labor Statistics

Maybe a quarter of the 800 billion stimulus package pushed in this direction. We need more. First, we need more stimulus. Good old-fashioned Keynesian stimulus during the downturn. Put people to work laying those rail lines and fixing those school roofs.

Second, we need to make sure the money stays in our own economy. We can’t ask American taxpayers to foot the bill or expect American workers to cheer when the windmills of the new energy economy are imported from Spain. It’s no gift to our economy to fix the water main with pipes imported from China that were dumped in US markets at below market costs, driving our own domestic pipe industry out of business. We can do better. We need to do better.

I’ll close with the thing we don’t need, the interpretation I warned against in the beginning. The Associated Press story about today’s unemployment data put it this way: “A robust economic recovery won't be sustainable if consumers don't pick up their spending.”

Wrong wrong wrong. The debt-driven consumption economy was the problem. The solution is not for consumers without jobs to start spending again. The solution is to rebuild our economy. From the ground up. The old fashioned way.

Green Shoots. For Whom?

Eric Lotke — Thu, 05 Nov 2009 09:43:58 -0800

Today’s “Productivity and Costs” data from the Bureau of Labor Statistics contain what looks like good news. Productivity increased at a 9.5 percent annual rate during the third quarter of 2009, the largest gain since 2003.

The Associated Press called it “sizzling.” The New York Times said we “surged.”

It’s good news and I’m happy about it. I especially like the 4.0 percent increase in outputs, led by a 12.4 percent increase in the manufacturing of durable goods. It almost starts to look like green shoots in a gray economy.

But keep the cork in the bottles. The hours worked last quarter dropped by fully 5.0 percent. The productivity gain came from doing more work in fewer hours. In the durable goods sector, the hours worked dropped a full 7.2 percent. The increase in productivity is fundamentally about people working harder.

And people aren’t getting paid for their hard work. Real hourly compensation rose only 0.2 percent last quarter. So if somebody is pocketing the gains from 9.5 percent increase in productivity, it isn’t the people working on the lines. Yes, they’re happy to have jobs. Yes, it’s nice to see any gain at all after a decade of decline in wages and income. But no, we don’t want to recreate the bubble that popped. We need to make sure these gains are widely shared and that the people doing the work reap their fair share of the benefit.

Source: BLS

Building a Smart Grid, Smartly

Eric Lotke — Tue, 27 Oct 2009 10:04:42 -0700

President Barack Obama announced today $3.4 billion in government grants to help build a "smart" electric grid. Like many Obama initiatives, it’s a smart first step. But much more is needed and one piece is rarely mentioned at all.

Start with the problem. America’s electric grid is aging and not keeping up with demand. Electricity demand has increased by 25% since 1990 while construction of transmission facilities decreased by about 30 percent. The results are higher costs and more blackouts. Carol Browner, the president's top adviser on energy and climate change, called the grid “outdated” and “dilapidated."

Our discussion of energy is dominated by wind farms and solar panels. They’re important, of course. But they leave open the question of moving the energy from the where it’s made (offshore wind farms or sunny deserts) to where it’s used (cities and factories). That’s the grid. It’s called smart because it can re-route electricity in accordance with demand or around trouble spots.

In the end, we want it all. Wind farms, solar panels and a smart grid to bring the energy from point A to point B. That’s our clean energy future.

But we want something else with consequences we don’t always recognize. We want to be self-sufficient. We don’t want to replace our dependence on foreign oil with a dependence on foreign manufacturing. And we want those clean energy jobs to be located at home. Especially if we’re funding them with our own tax dollars. As Campaign for America's Future co-director Robert Borosage puts it:

“Not simply a timid buy America policy satisfied with the final assembly of parts and technologies made elsewhere, but moving entire supply chains so that our workers and engineers and entrepreneurs are familiar with cutting edge technologies that our inventors can soon surpass.”

Right now, half of our wind turbines are imported from overseas. Ninety percent of our solar cells are manufactured in China — which requires that its own solar installations use domestic (Chinese) content.

This isn’t about protectionism or neanderthal rejection of global trade. It’s about thriving in a competitive global economy. America needs to think strategically. Move away from asset bubbles and debt-driven consumer spending. Rebuild our real economy of production and manufacture.

Public investment in infrastructure is a crucial step in that direction. It creates jobs now and increases our competitiveness in the future. A new smart grid is part of it — and it’s even smarter if the transformers aren’t imported from China.

If you’re near DC, please come to our conference Thursday October 29, building the new economy. It’s free, and Senator Sherrod Brown (D-Ohio) will share his ideas over lunch. It’s time to pop the bubble economy.

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UPDATE: After this post was published, the White House released additional detail. Most important: The smart grid program includes $25 million to expand the necessary manufacturing base. It's a small amount and nowhere near the top of the release -- but the White House calls it "a significant and growing export opportunity for our country and new jobs for American workers." It's nice to see details trending in that direction.

Bernanke Solves The Wrong Deficit

Eric Lotke — Mon, 19 Oct 2009 18:55:54 -0700

Federal Reserve chairman Ben Bernanke recognized today that America’s trade deficit played a central role in the global economic crisis. Then after he recognized the problem, he went on to solve a different one.

Start with the real problem, America’s trade deficit. America is spending more than it earns, and buying more than it’s selling. Our trade deficit in 2008 was $706 billion.

We know we’re addicted to oil. We’re also addicted to cheap stuff imported from China (made cheap by devalued currency and near-zero workplace or environmental protections). America’s problem is a huge efflux of dollars, as our wealth departs for foreign lands.

The Asian export tigers have a smaller problem, but they have one too – an excessive reliance on excessive American consumption. The danger is, in Bernanke’s own words, “ever-increasing and unsustainable imbalances in trade and capital flows.”

So America has a trade deficit. The world has an unsustainable imbalance. That’s ungood.

Bernake’s solution to this trade deficit? Reduce the federal budget deficit.

If you listen quickly, it may sound like reducing a deficit to reduce the deficit. But listen carefully. Bernanke wants to reduce a different deficit.

Sure, the federal budget deficit is high. It may be a problem (though not as bad as it seems) but it’s a different problem.

The ultimate underlying problem is this trade deficit. And we need to solve it. We need to solve it the good old fashioned way. By making things, building things and selling things. Fundamentally, we need to sell more than we buy. That’s what Bernanke said the problem was.

And to solve that problem – the trade deficit – government spending may be needed in the short term. We may need to stimulate the economy by building roads, train tracks and windmills – investments that increase our productivity over time. We may need to invest in research and development of ideas whose commercial application will come later (think internet). In short, we may need to eat some federal budget deficit in the short run to solve the problem of both deficits in the long run.

Ironically, the recession has been good for our trade deficit. We can’t buy as much and don’t have as much money to spend. But it can’t last and we don’t want it to. We want to rebuild our economy, though differently this time. The current crisis must plant the seeds for the economy of the future. That’s the conclusion Bernanke flirted with, but didn’t say.

Time to Take on the Banks

Eric Lotke — Fri, 16 Oct 2009 12:32:49 -0700

It's time to take on the banks. 74% of American voters agree that “greed and risky decisions of banks and financial companies led to the financial crisis and recession, and it's time that Congress cracked down on their reckless practices to protect consumers.”

The American people are angry. There is a strong, bi-partisan appetite for reform. By a 64 to 27 percent margin, people believe that “we need stricter safeguards on banks and financial companies to improve accountability by reining in excessive bonuses, protecting consumers from exorbitant fees, and making financial dealings safer and more transparent.”

All these findings come from a new survey of registered voters done by the Benenson Strategy Group for SEIU. People understand what damage was done and who’s to blame. And behind the damage is a strong sense of betrayal.

•• “While taxpayers are still suffering under the economic crisis, the big banks are back to business as usual after their bailouts, ignoring their commitments to help taxpayers and are helping themselves instead, making tens of billions in profits on the backs of the American taxpayers.” 75 percent agree.

•• “It's outrageous that after taking trillions of our tax dollars in bailout money, the big banks are now spending millions to lobby against reforms that would protect us from their abuses in the future.” 72 percent agree.

The solutions are clear as well. Supermajorities in the eighty percent range support technical reforms like capping rate hikes and regulating overdraft fees. Similar supermajorities support philosophical reforms like limiting executive compensation and requiring that bail-out money be used for business lending. That’s what the people want.

Now it does get partisan. Democrats have an opportunity to lead. People didn’t vote last November for laissez-faire capitalism and billion dollar bonuses. They didn’t bail out banks that were too big to fail so they could take over banks that were smaller and did.

But reform is stalling. The proposed Consumer Protection Finance Agency gets weaker every day. Efforts to regulate derivatives — what Warren Buffet called “weapons of financial mass destruction" — are barely off the ground. A grassroots push to Audit the Fed and find out what it did with our money ($2 trillion) hits deaf ears in the Senate.

Almost exactly six months ago, Senator Dick Durbin (D-Ill.) called banks the most powerful lobby on Capitol Hill. “And they frankly own the place.”

Now is the pivot point. After the melt-down and the election, now it’s time to find out if they still do. Democrats can show that they’re on the side of working people. They can show the courage to take on the banks. If it wasn’t obvious before, the SEIU poll makes it clear.

Next week the American Bankers Association will meet in Chicago, and protesters are organizing to be heard. Democrats can take a side.
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Curious what happens if we don’t win this fight? Read my novel. 2044. The Problems Isn’t Big Brother. It’s Big Brother, Inc.

The American People: Smarter Than They Look On TV

Eric Lotke — Tue, 13 Oct 2009 08:51:21 -0700

New public opinion research by the Economic Policy Institute contains reassuring findings. The American people are smarter than they sometimes look on TV.

The survey of 802 registered voters in September 2009, revealed a clear sense of who’s winning and who’s losing in the economy and politics. People were asked who “the government's policies to deal with the economic recession have helped.” The frontrunner was “large banks” (62 percent) followed by “Wall Street investment companies” (54 percent). Trailing way behind were “people who have lost their jobs or had their hours cut back” (15 percent) and the “average working person” (13 percent). “Me and my family” came in last place at ten percent.

Joe the teabagger might be getting hoodwinked about who he should march against -- but he knows who (still) calls the shots in Washington. He’s right to be angry.

Source: Economic Policy Institute

The EPI survey contains findings ratified elsewhere about economic pessimism. 85 percent of registered voters think the country is “still in recession” and 73 percent rate economic conditions as “not so good” or “poor.” 83 percent consider unemployment a “big problem.” Lack of jobs is the biggest problem in the economy, followed closely by the federal deficit and the cost of health care.

But EPI probes deeper than most surveys, and reveals profound insights about American long range thinking. Specifically focusing on the deficit, EPI asks whether it is better resolved by investing in “job creation, education and energy” or by “cutting government spending.” More than three times as many Americans preferred investment to cuts (73 v. 24 percent).

Source: Economic Policy Institute

This mirrors findings from our own poll, taken at this time last year, just before the election. We asked, “Which should be a higher priority for Congress: Expanding public investments that create jobs, even if that means increasing the budget deficit, OR reducing the budget deficit, even if that means not making new investments to create jobs.”

Source: Campaign for America's Future

Expanding public investments solidly outscored reducing the deficit (48 percent vs. 37 percent). The finding was consistent in both red states (by a 12-point margin) and blue states (by a 10-point margin).

The preference held even when we asked the question in political terms: "Democrats in Congress favor passing new economic recovery legislation designed to boost the economy and create jobs by increasing investments in areas such as transportation, energy, health care, and education, and by helping families struggling with high food and energy prices. President Bush and Republicans in Congress oppose the legislation, which they say is just more wasteful, pork-barrel spending and earmarks that will not help our economy and will lead to tax increases in the future.”

Again, people favored long-term investments: 52 percent of likely voters sided with investing Democrats. Only 36 percent sided with tax-cutting Republicans.

What does this mean? It means the noisy teabaggers and the mainstream media worried about high deficits and government spending are the start but not the end of the story. There’s much more. We need to look beyond the urgency and the noise.

If we ask the right questions or push in the right direction, the American people might come with us. Long range investments. Spending on infrastructure or education. A whole raft of progressive goals that cost money in the short term but will grow the economy and reduce the deficit in the long run.

It’s work but we can get there. The American people are smarter than they sometimes look on TV. They're capable of understanding long range investments, and they're willing to look ahead.

Deficit reduction: DOs and DON’Ts

Eric Lotke — Wed, 30 Sep 2009 18:02:51 -0700

The forum on American debt and deficit had it right. First, don’t panic. Don’t stop the stimulus spending or raise taxes with the economy still near the bottom.

The Center for American Progress and Center on Budget and Policy Priorities convened the forum. Guests included Paul Krugman (NYT), Robert Reischauer (Urban Institute, OMB), Senator Mark Warner (D-VA), and some all star academics.

I won’t attempt a blow-by-blow but some main themes emerged. First, a strong consensus on what NOT to do:

-- DON’T panic at the size of the deficit or worship at the feet of debt reduction.

-- DON’T stop the stimulus spending or raise taxes in the short term. We’re still in the depths of recession. Consumers aren’t spending and neither is business. The government needs to drive demand in the short run. If we quit now, we’ll likely tip back over the wrong side of the precipice.

These charts aren’t from the forum, but can help reduce the panic. America’s debt is high, but well within historical and international norms.

Source: OMB history, 1930-2008; CBO projections, 2009-11

Source: CIA

Those are DON’Ts from the forum. There were DOs as well:

-- DO worry about debt in the long term. Our progressive goals – education, health care, high speed rail, help for the needy – cost money. Negative budget numbers make it hard to reach our goals.

-- DO talk about more than just cuts.

Conservatives discuss the budget in terms of spending, and demand cuts. But there are other ways to shrink the deficit. Most obvious is to grow the economy, even if it takes stimulus or infrastructure spending to get there. That’s a different way to shrink the deficit as a percent of GDP.

-- DO go ahead and talk about raising revenues. “Raising revenues” is better language than “tax hikes,” and it opens more doors. Closing loopholes and corporate exemptions are also ways to raise revenue. We might give those Bush tax cuts some extra years during the recession, but ultimately we need to raise revenue. Don’t fall for the conservative framework of a one-side ledger, with spending-cuts as the only path to balance. The ledger has a revenue side as well; we can also level up.

-- DO link what we get with what it costs and where the money comes from. Nobody likes taxes. But people realize that schools and roads cost money. Package them all together.

Behind all of this lurk some political cautions. The ghost of Peter Orszag was often heard, reminding us that the budget problem is a health care problem. We need to fix health care (Medicare and Medicaid, not Social Security) to fix the budget.

Senator Warner recommended that Democrats find some spending cuts or new efficiencies to show good faith effort to control costs. They need to earn the taxpayers’ trust with their money.

Charlie Cook (Cook Political Report) warned that Democrats are likely to lose seats in the 2010 midterm elections, and will have more Senate seats than Republicans open or at risk in 2012. The American people are always suspicious of government, and nowadays they’re angry. They don’t trust government with their money.

Maybe the frustration comes from Republican failures after Hurricane Katrina, Bush bungling in Iraq or the current recession … but it’s the Democrats’ government now, and distrust is the Democrats’ problem. The current distrust jeopardizes long term progressive goals.

The conclusion: DON’T quit the stimulus yet; it’s too soon. But DO attend to the debt in the long run. It’s important both politically and financially to the progressive mission.

G-20 Promises: What They Mean

Eric Lotke — Fri, 25 Sep 2009 05:43:16 -0700

The G-20 Summit is wrapping up today. We can compare its performance to promises made in advance. Leaders discussed financial markets, of course, but they also made promises about jobs and work. Some highlights:

“3. We must promote employment through structural policies, active labour market policies, and training and education.”

In other words, leading economies from China to Germany — 80 percent of the world economy! — recognize that the invisible hand can’t work alone. Government doesn’t always need to get out of the way. Sometimes it needs to take the lead.

-- What “active labour market policies” do we need in America? A higher minimum wage? Health care that isn’t tied to your job? The Employee Free Choice Act to protect workers’ right to form a union?

-- What does America need for “training and education”? More public funding for higher education? Even if it takes money from the banks?

-- What can other countries do? China can stop devaluing its currency or improve labor or safety standards so U.S. products compete on a more level playing field … but I’m not holding my breath.

“5. We will work to achieve high, stable and sustainable growth, which will require orderly rebalancing in global demand, removal of domestic barriers and promotion of the efficient functioning of global markets.”

-- Does the G-20 realize that America can’t stay a debtor nation forever? It’s good for our lenders in the short run, but it’s good for nobody in the long run.

-- We put it this way in our report, Pittsburgh, G-20 and the New Economy:
“The G-20 must … chart the process by which the global economy that emerges out of the crisis is more balanced, and no longer dependent on U.S. citizens spending more than they earn. That means the U.S. must invest more and consume less, make more and import less. And the surplus nations must do the reverse: consume more and buy more from abroad. This will require wrenching changes in policy and in attitudes. But if we are to move to growth that is sustainable in Pittsburgh as well as Beijing, we have little choice.”

Did the G-20 Summiteers meet their goals? Is there a way to hold them to it?

Here’s a step we can take at home. The next time domestic Republicans yell about “protectionism” and “get the government off my back,” remind them how grown-up economies talk about government. “Active labour market policies” (#3) and “orderly rebalancing in global demand” (#5). Those are changes we need.