Between an economic rock and a hard place

The Thinker by Rodin

Truth seems to be a precious commodity these days. Truth is not always easy to handle, but it does has the virtue of being true. Given the truth, you at least have a chance of working your way out of a problem. Unfortunately, there are many vested interests out there willing to lie or give us only partial truths purely to advance their agendas at the expense of the nation as a whole.

The current presidential campaign needs a whole lot of truth from both President Obama and future Republican nominee Mitt Romney. Of the two, Obama at least is closer to telling us the truth, but he is shielding Americans from harder truths. I wish that Obama could simply dump his posturing and nuancing and simply tell us the truth. It would be especially welcome to hear some truth about the economy, particularly yesterday when our unemployment rate crept up from 8.1 percent to 8.2 percent, while we actually very modestly increased hiring.

Republicans are all over the report, of course, pointing it as more evidence of a failed presidency. No question about it, 8.2 percent unemployment is not great, particularly if you are unemployed and don’t wish to be unemployed. Is it Obama’s fault? Shouldn’t he be held accountable because he is president?

Obama at least has a net increase in jobs during his administration and twenty-seven months of consecutive job growth, which is more than you can say about the George W. Bush administration. I think Obama has done a remarkable job dealing with an economy that at the start of his term looked like it was heading into a new depression. At least we are heading in the right direction.

Yet the reality is that neither Obama nor a President Romney can work miracles on this economy by himself. This is because the president has limited powers. The alchemy of presidential power happens at the edges, if it happens at all. Mostly it occurs when the president is successful in persuading Congress. This was hard for Obama even when Democrats were in charge, and virtually impossible now. Moreover, there are systemic problems that are at work that are likely to cause relatively high unemployment rates for years to come. Some of these can be ameliorated; some cannot. There are some short-term strategies that will improve the situation, but fixing the long-term problems is tough and cannot be solved by doing more of the same.

Here are some truths about our economy I wish I would hear from anyone running for public office:

  • We are in a hell of an economic mess mostly of our own making. Yes, it is partially the result of lots of things outside of our control, such as the closely connected international economy. It is also due to our inability to come to a political consensus. This, more than anything else, is the root of our problem, and our problems will likely linger until broad consensus is reached.
  • Europe matters. It is going into another recession. It has and will continue to affect our economy, and is probably the reason our job growth is slowing. Austerity in Europe is leaving people there poorer, and thus they cannot buy as many of our products and services, plus it adds uncertainty to the whole world economy. To some extent, our economy will be impacted until Europe itself achieves political consensus and its economy rebounds. And that is something neither Obama nor a new president can fix.
  • The economy is not going to improve by cutting public spending. Doing so will only cause the economy in the short term to get worse. This is because, no matter how inefficiently, spending money employs people. And when people are employed they mostly spend the money, which stimulates the economy.
  • Sustainable growth happens when we make new products or services that other people broadly want. And that does not happen through inertia but through a lot of research, investment and through having a highly skilled work force. It happens to some extent through government investments. The Internet, the key to our modern economy, was not a result of entrepreneurial behavior, but a result of a government research product.
  • Wealth does not trickle down. It grows as a result of a burgeoning middle class. The one percent already have virtually all they need and are not going to spend enough of their capital to grow the economy for the rest of us.
  • Growth requires infrastructure. The surest way to cripple our economy in the long term is to neglect infrastructure spending. Austerity will do just this.
  • We are all going to have to pay more taxes. If we are stupid enough to delude ourselves that we don’t have to, we will move our country down the economic ladder, eventually moving us into a second world status. Governments don’t exist to redistribute all wealth, but do need to redistribute some wealth; otherwise you don’t have a government. If it doesn’t, bridges don’t get built, roads don’t get paved, power grids deteriorate, children don’t get educations, shoddy medicines end up on the market and unsafe food ends up on our shelves and in our bodies. Our economy, including our national defense, depends on having our infrastructure in place.
  • The education of our citizens is a critical, if not the most critical, of all the factors underpinning our long-term economy. The free market cannot solve this problem. If it were possible, there would have been no reason to create public schools in the first place. True sustainable growth comes from maximizing the educational potential of all our children and applying it to products and services the world needs. That means we want all children capable of it to go to college, if possible. We want to inculcate a curiosity in our children and provide an environment that rewards creative thinking. We must invest in our children’s education, if for no other reason so they can sustain us in our old age.

In short, we are in a huge economic mess and the choices we are making or not making are making it worse. We need a national strategy that fundamentally addresses these issues. Tax cuts won’t solve the problem. Corporate welfare won’t do it either. We can start with spending heavily on infrastructure, through deficit spending if necessary. Perhaps we need a national infrastructure bank. Such a bank would serve to depolarize the issue of spending money on infrastructure. And it would certainly stimulate job growth, as well as better position us in a competitive world.

Our Emerging Federated World

The Thinker by Rodin

The nation-state is dying. What is emerging to replace it is a state of states. It is a newer and smarter federated model of governance for the 21st century and beyond. It is a good model that I believe will work better to serve the needs of our increasingly complex and overpopulated world.

I saw plenty of evidence of this new world order during my family’s recent trip to France. It is not that France, as a country, no longer exists. It certainly does. However, it is no longer quite the sovereign country it once was. Their former currency, the franc is gone. It has been replaced, as have most of the currencies in Europe, by the euro. Since the formation of the European Union, a French citizen no longer needs a passport to move around the E.U. countries. French citizens now travel internationally using a generic European Union passport. (Your country’s seal is embossed on the cover.) These are just some of the privileges of federation. Citizens of the European Union can now travel freely within the E.U. without even the hassle of a border check. There is no need to convert currency inside the E.U. either. All E.U. member countries use the euro. In addition, E.U. residents can compete for jobs elsewhere within the E.U. This has expanded the job possibilities for millions of Europeans.

Bully for Europe. The European Union is the first example of a new kind of federalist uber-state. Europeans have discovered that collectively they can wield much more clout, as well as live richer lives, by federating. For those countries that choose to federate, this tide raises all boats. Europe, which throughout its history was scarred by seemingly incessant wars, can likely look forward toward a more peaceful future. A Frenchman today is as likely to think of himself as a citizen of the E.U.

It is not that countries in Europe have ceded all of their rights. Each country still has its legislature and controls most affairs inside the country. Some members, like Great Britain, have only gone up to their knees into E.U. waters. The British cannot seem to give up their pounds in favor of euros. Nor can they quite adjust to the metric system when their English system of measures remains hardwired into their brains. Other countries like Turkey and Macedonia want to be part of the European Union, but the E.U. is holding them at arm’s length. In addition, countries like Iceland, which are not official members of the E.U., seem to have some of the privileges of federation. Iceland participates in the European Free Trade Association and subscribes to the Schengen Agreement, which lets it share immigration and border policies with the E.U.

If the forces of chaos can be kept at bay, in time what is happening in Europe is likely to happen over much of the civilized world. Our grandchildren may live in a world that is more like George Orwell’s vision of Eurasia and Oceania (just hopefully not as hopeless). Europe is first out the gate, but internationalism in general is emerging all over. Africa is already looking northward for an example. Right now, its African Union is more like a United Nations of Africa than the federated E.U., but it certainly has the potential to morph in time into an E.U.-like state of states.

The mere idea of federating nations here in North America is anathema to America’s leaders. Nonetheless, cooperation is expanding with our neighbors in many areas in the Americas. The Organization of American States has been around since 1948, but is largely toothless. More meaningful are lower levels of federating through trade agreements such as the North American Free Trade Agreement (NAFTA) and the nascent Central American Free Trade Agreement (CAFTA). We have seen the impact of NAFTA for many years now, both for good and ill, but its effect is to make Canada, Mexico and the United States more economically dependent on each other. In the grand scheme of things, this is likely a good thing.

As you probably know, there are many other regional organizations, most of which are only loosely federated at best. The Arab League allows Arab countries to come together periodically and vent, but it does not accomplish much of note. Southeast Asian Countries have formed ASEAN to work on common economic and political issues. ASEAN has enough mojo that our president usually flies out to attend their annual summit.

Of course, there are many other international institutions serving a variety of purposes. The United Nations goes without saying. Many question its value, but at least it provides a forum for aggrieved nations to scream at each other instead of firing volleys. Considering that it was formed in the 1940s, it is not surprising that it is largely toothless. Less toothless are powerful international institutions like the World Trade Organization and the World Bank. Less interesting, but just as vital are organizations that do our international plumbing, like the International Standards Organizations and the International Telecommunications Union.

All these organizations of course are responding to needs of a changing and growing world. The United States is one of a small number of countries that still harbors the illusion that it is not that connected by an umbilical cord to the rest of the world. We figure, wrongly, that if things outside our borders went too much not to our liking, we could simply lift the drawbridges and dwell in happy isolationism. The reality would be a national depression that would make the 1920s and 30s look like the good old days. Lord, Wal-Mart would even have to buy American!

Looking at the E.U. example, you can almost see the light bulbs going off over the heads of the smarter countries out there. There is strength to be found in joining with likeminded compadre states. The European Union is leading the way with a regional federation of countries with similar values. This new federalism is not that much different from the model we have here in the United States. Our states maintain a lot of independence from the federal government. Only limited control is ceded to the federal government. This gives a lot of flexibility to find solutions acceptable at the regional level while allowing for common needs to be addressed at the federal level. The E.U. now demonstrates a way that this can work with countries, and other countries are taking note.

Except, of course, here in the United States. We tend to look down our noses at other countries. We just cannot help it. We think of ourselves as the epitome of a successful country, and figure all those other countries just need to emulate us in order to succeed. Goodness knows we need not waste our time emulating them. We will cooperate with other countries if they act servile toward us (preferred approach), or do not say too many nasty things about us (acceptable approach). The reality, of course, is this attitude works to our long-term detriment. The global sandbox is getting more crowded. Countries that work well and play well with other countries are going to get less sand thrown in their faces. Right now, the United States is sitting in one corner of the sandbox in a huff, but the sandbox is getting more crowded. When will we learn to play nicer? When will we start sharing pails more often with our sandbox neighbors?

I expect that this new form of federalism will continue to expand. I expect that 100 years from now tourists like me will look forward to going to visit the E.U., not France, Spain or Great Britain. I expect by sharing a common governmental infrastructure that federated states like the E.U. will have a competitive advantage. Witness it emerging in endeavors like Airbus S.A.S., an airplane manufacturer that competes well with Boeing and spreads its jobs across E.U. member states.

Call me nuts but I think there will be a time, perhaps fifty years hence, when the United States will be petitioning to be in the European Union too. We will kick ourselves for not having done it sooner. I expect that Russia will get there long before us, once they too emerge from their nationalist huff. The E.U. may well be the 21st manifestation of George Orwell’s Eurasia, encompassing perhaps the entire Anglo-Saxon world.

I would prefer, however, to look toward an ultimate solution: world government. The very term sends shivers up the spines of most Americans. However, this new federated model should give us hope that it can be done in a way that will work for everyone. Perhaps world government would look like a federation of federated states. This is, in fact, some of the thinking behind the World Federalist Movement, to which I have alluded before. It is a model for how to live together on this increasing small planet in relative harmony. I encourage you to spend some time checking out their site.

Allied against federalism of course is the usual anarchy and forces that want to pull us back into our tribal past. There will be more on this in a future entry.