We Just posted the article about Pigovian Economics – please read the two as one.
More Risk-Taking, Less Poll-Taking
Published by The New York Times on-line: January 5, 2013
THE U.S. military trains its fighter pilots on a principle called the “OODA Loop.” It stands for observe, orient, decide, act. The idea is that if your OODA Loop is faster and more accurate than the other pilot’s, you’ll shoot his plane out of the sky. If the other pilot’s OODA Loop is better, he’ll shoot you down. Right now, our national OODA Loop is broken. We are doing something crazy — taking the country back and forth to the financial brink to produce suboptimal, midnight compromises without any overall plan for how this will lead to growth in the world in which we’re living. We’re doing the worst thing a country can do — cutting taxes and spending without a plan. Maybe you can grow without a plan. But if you want to ensure that every scarce dollar gets the biggest bang, you can’t cut without a plan. It’s deciding and acting without observing and orienting. It’s how fighter pilots get shot down.
President Obama, by his own admission, focused his campaign almost exclusively on the need to raise taxes on the wealthy, and the Republicans focused theirs on lowering them. But neither one offered the country what we need most: a description of what world we’re living in, what is new, and how we maximize our ability to compete and grow in this world — and then offering up a comprehensive, detailed plan of appropriate phased-in spending cuts, tax reforms and investments in research, infrastructure and early childhood education to create more good jobs and the workers to fill them.
What world are we living in? It’s a world in which we face three major challenges: responding to the merger of globalization and the information technology revolution, which is changing every job and workplace; dealing with our mounting debt and entitlement burdens, driven by steadily rising health care costs and unsustainable defined benefits; and, finally, developing energy sources that can grow the world economy without tipping it into disruptive climate change. (At one point last week, the Senate approved a $60.4 billion aid package to help New York and New Jersey recover from Hurricane Sandy. If fully implemented, that would mean we’d spend on one storm all the new tax revenue for next year that the House and Senate just agreed to in the fiscal-cliff negotiations.)
What each party should be saying is, “Given this world, here are the specific tax reforms, spending cuts, investments and policy innovations we need to grow our middle class, sustain our retirees and shrink inequality.” Instead, we have no leaders ready to trust the public with the truth, so both parties are shooting themselves in the foot and our future in the head. As Matt Miller, author of “The Tyranny of Dead Ideas” noted in The Washington Post, “Republicans haven’t identified anything remotely equal to the savings we need. And because many liberals haven’t thought through the long-term budget implications, or wrongly assume that taxes can rise indefinitely or that the Pentagon can be shrunk to something less than a triangle, they resist sensible steps to slow the growth of Social Security and Medicare, not realizing that this course will assure before long that there isn’t any new money to spend on, say, poor children.”
I expect nothing from the G.O.P. It’s lost and leaderless. I expect a lot from Obama, who knows what needs to be done and has said so in the past. I expect him to stop acting as a party leader and start acting like the president of the whole country. When I heard Obama say, after the election, that this time he was going to take his plan to the country, and not make the mistake again of just negotiating with Congress, I thought, “Great, I can’t wait to hear what he says.” But all he took to the country was a plan for increasing taxes on “millionaires and billionaires.” There was nothing comprehensive, nothing bold, no great journey for America and no risks for him. Really disappointing.
Maybe Obama has a strategy: First raise taxes on the wealthy, which gives him the credibility with his base to then make big spending cuts in the next round of negotiations. Could be. But raising taxes on the wealthy is easy. Now we’re at the hard part: comprehensive tax reform, entitlement cuts, radical cost-saving approaches to health care and new investments in our growth engines. This will require taking things away from people — to both save and invest. A lot of lobbies will fight it. The president will need to rally the center of the country and the business community to overcome them. He’ll have to change the polls, not just read the polls. He will have to take on his own base and the G.O.P.’s.
Obama has spent a lot of time lately bashing the rich to pay their “fair share.” You know what? There are definitely some Wall Street bankers and C.E.O.’s who deserve that bashing. But there are many successful Americans who got their wealth the old-fashioned way — by risk-taking, going into debt to start a business or pursue a dream.
It’s time for the president to do some risk-taking — to stop just hammering the wealthy, which is so easy, and to start selling the country on a strategy to multiply them. We need to tax more millionaires, but we also need more millionaires and middle classes to tax. The president was elected to grow our national pie, not just re-divide it.