New Economies Policies Needed for USA

In the 90's & the 2,000's I have been single out to both presidents' that United State would need to built the economy power based on the Knowledge Base economy or rather the e-Economy.

I am a strong believer of Landbased prosperity is gone in the developed country & later the developing countries as well. The recent melt down on economy which have caused the economic Tsunami of our life time is just the prove on these.

In the next few issues, I would give you more on my thought on the way United State of America need to stay as the leader & continue exercising the power & influence of the economy & politics in this world.

Please read the following for now:-

What Obama Needs To Do
By jeffrey.sachs
Created 11/05/2008 - 10:18am


The election victory of Barack Obama offers a breathtaking hope for economic recovery, indeed a hope of historic proportion for America and the world. Change we can—if we escape from narrow thinking and tinkering around the edges of public policy. More gimmicks such as one-off rebate checks or zero interest rates at the Fed, as some now propose, will not suffice. The government needs a clear medium-term strategy, to reinvigorate private investment spending, and it will need increased budget revenues in the years ahead for urgent public investments and long-term restructuring. Short-term recovery will be promoted by clarity on the long-term direction of economic change.

In short, the U.S. economic crisis requires a new kind of macroeconomics, and it is the most urgent task before President-elect Barack Obama. The Humpty Dumpty of the housing and consumer bubbles cannot be put back together, no matter how many Wall Street bailouts, liquidity injections, or tax rebates are put in place. The end of the consumption boom marks the collapse of an era that began with Ronald Reagan. Some pundits and politicians would like to return to the policies of the Clinton years, but those policies were compromises with Reaganism that will no longer suffice. Twenty-first-century problems cannot be solved by trying to resurrect the policies of the 20th century.

The U.S. economy is spiraling downward into recession and gargantuan budget deficits. The Fed pumped up the economy for years and encouraged the reckless overlending and overborrowing for housing and consumer credit, all in the name of keeping the economy growing. (Remember, after all, how George Bush encouraged us to shop as the patriotic response to 9/11). A country that sustains zero or negative household saving rates for years and borrows heavily from abroad is bound to pay a heavy price and that time has come for the United States. But even worse, while the housing and consumption bubbles were ballooning and the Iraq war was bleeding lives and money, a range of other crucial challenges—environment, energy, infrastructure, inequality, global poverty—were all neglected. Now, the macroeconomic and structural crises are coming to a head simultaneously.

Here is a quick tour of our macroeconomic miseries, with roots that go back 40 years. The 1970s marked the end of two eras, the gold-backed monetary system (which ended between 1971 and 1973) and the era of cheap oil, which ended in 1973. The dual crisis, poorly understood at its inception, ushered in several painful years of stagflation, in which scarce energy was coupled with monetary policy mismanagement, to produce both high inflation and economic contraction. Jimmy Carter was dead right about the long-term energy challenge, but he was mocked for his efforts, which were abandoned after he left office.

Ronald Reagan misdiagnosed the stagflation, and put the United States on a disastrous long-term course. Reagan and his colleagues argued erroneously that the problems lay in government regulation, excessive taxation, and welfare handouts rather than on the need for a redesign of monetary policy (which Paul Volcker painfully accomplished) and a sound long-term energy policy. They proceeded to dismantle much of the social safety net, building an underclass in America that is shocking by the standards of any other advanced economy in the world, for example, leaving America ranked 24th in the world in life expectancy and 25th in infant mortality. The great myth in America is that capitalism demands such brutal neglect of the poor, a point that is disproved daily by the high incomes, low poverty, and social cohesion of other advanced economies. The Reagan tax cuts led to a generation in which we've been unable to invest in basic infrastructure. And the Reagan era began the massive financial deregulation that brought us to today's calamities.

The Clinton era reversed some of the excesses of the Reagan era but was basically a compromise with it. During the 1990s, tax revenues as a share of GNP were kept low, and Washington continued to dismember the social safety net (by "ending welfare as we know it" and abandoning any major efforts in housing, child care, or public education) and to accelerate financial market deregulation. Foreign assistance in the 1990s fell to rock bottom, a miserly 0.1 percent of GNP, allowing the AIDS pandemic and African hunger crisis to build. Then as now, Americans failed to understand that unattended hunger, disease, and deprivation are the breeding grounds of extremism and conflict that threaten our national security and lead to vastly larger costs.

Big money further infected the political system as well. Both Democrats and Republicans made peace with vast wealth by linking up with the high-flying innovators on Wall Street, the ones who have now crashed to earth. Yet the supplication to the bond market was taken to mean the end of ambitions to solve great challenges of energy, climate, poverty, or infrastructure. Universal health care remained essentially the only area of remaining progressive commitment, and that, of course, went unfulfilled.

Marx famously said that history comes first as tragedy and then as farce. Yet under Bush we've had both tragedy and farce. The Bush administration made shopping and tax cuts the official macroeconomic policy of the United States. Households were to borrow against their housing wealth to keep the consumption machine going. Financial deregulation, building on the precedents of the 1980s and 1990s (and the savings-and-loan and dot-com bubbles they helped to stoke), would keep the housing market in fine fettle.

We have, as a result of all of these changes, a U.S. economy that has been brought to its knees despite the incredible underlying strength of American innovation, the ultimate engine of prosperity. Here's the list of particulars. Consumer spending is in free fall, toppling housing, autos, and other consumer industries. Unemployment will rise by several percentage points. The budget deficit is ballooning, at around $460 billion this past year, and set to expand by several hundred billion dollars in fiscal year 2009. Some are forecasting a cool trillion dollars in the fiscal 2009 deficit.

America's dependence on foreign borrowing has also reached staggering and unsustainable proportions of more than $700 billion per year. Foreign central banks, mainly in Asia, have accumulated trillions of dollars of claims on the United States. And, of course, the banks remain deeply decapitalized and unable or unwilling to lend. Unconscionable Wall Street bonuses, exceeding $30 billion per year in 2006 and 2007 played their role, both by creating a climate of reckless short-termism and, more directly, by depleting the companies' net worths.

The energy sector is in a shambles. There is no national strategy to address the three-sided challenge of energy security, energy availability, and climate change. We've been reduced to a nearly insane call to drill, baby, drill. Hapless and woefully misinformed Americans are led to believe that there is a quick and lasting remedy in an environmentally dubious "solution" that would take years to produce the first drop of oil and that might produce a total of 25 billion barrels of oil, less than one year's global consumption.

Serious longer-term alternatives—such as carbon capture and sequestration, properly regulated nuclear power, and large-scale wind and solar power—are caught up in incredible confusion and lack of political leadership. Dishonesty and shortsightedness abound. Under Bush, the federal government has been spending less per year on energy research and development than in two days on the Pentagon. And industry is rightly paralyzed in building new power plants, not seeing any clear direction on national policies.

Indeed, just about the only thing the Bush administration found money for was military invasions and occupations, surely the one investment that is yielding us a nearly solid negative-100 percent return. The money has gone right down the drain, into Blackwater and Halliburton bank accounts, or the destruction of villages in the mountains of Afghanistan, where cruise missiles and bombs continue to blow up whole families, often dozens of members at a time.

The Obama economic strategy unveiled during the campaign has the right pieces, but he will need to be bold to make real change. He is right that we should spend vastly more on the research, development, demonstration, and deployment of clean, sustainable energy. His R&D proposal of $15 billion a year is a great advance over today, but it's quite likely that even twice that amount will be needed. We should remember that even $30 billion is merely 0.2 percent of our annual GNP, and we should put all fiscal choices in the context of a $14 trillion economy, a $700 billion military budget, and about $1 trillion, if not more, in bank bailouts and guarantees.

Obama is absolutely correct that America will be much safer if we invest more in foreign development than in foreign wars. He has proposed to boost development aid to $50 billion by 2012, an important move in the right direction but one that would still leave the assistance budget at a mere 0.3 percent of GNP, still far too low to address the multiple crises of water, hunger, disease, population, and climate in Africa, the Middle East, and Central Asia that fuel much of the global unrest today—and far below the internationally agreed—upon target of 0.7 percent (of which the United States has been a signatory since 2002).

America will sooner or later have to overcome its extreme allergy to taxation at a time when the government is hemorrhaging in deficits and when urgent public needs go unfulfilled. Obama's economic advisers have emphasized that their proposed tax package would leave federal fiscal revenues at around 18 percent of GNP, noting that this would be around the average of the Reagan years. Reaganism would live on, as it did through the Clinton years, by keeping the United States on a small-government path guaranteed to leave unsolved the problems of energy, infrastructure, poverty at home and abroad, and an aging population. Some off-budget revenues such as new income from auctioning carbon permits could raise some more funds, but the basic point should be clear: Our problems will need a robust fiscal program, with a gradual rise in tax revenues as a share of GNP during the next decade, or they won't be solved at all. We should avoid raising taxes on the middle class during a steep downturn, but we should also not lock in chronically deficient tax revenues for years to come.

Our macroeconomic problems require major public investments in new technologies, infrastructure, public education, and poverty reduction. At some point soon, Americans will have to start paying for these investments themselves, rather than borrowing heavily from abroad. We are experiencing the structural shift from an economy relying on easy money and seemingly endless international borrowing to an economy that is gradually realizing that ultimately we will have to pay our way, especially if the United States wants to be a leading power. There are pressing domestic and global investment needs, and the money has to come from somewhere. The only place it can come from is an increased tax base, which requires abandoning the Reagan-Bush mythology.

In sum, the recipes since 1981 of small government and small-bore solutions are passé and dangerous for our very survival in the United States and on this planet. While Reagan was crudely ideological, Clinton mildly reformist, and Bush simply crude in the application of these small-government doctrines, none of the recent approaches will do. It's time to stop talking about who can give away more to the public in rebates and start talking about investing in our future in a way that can save the poor, sustain the rest, and build a decent world for our children. Those are the real family values.

http://tbm.thebigmoney.com/articles/judgments/2008/11/05/what-obama-needs-do?page=full