I heard the editor of Vermont Business Magazine ask that question on VT this Week. Interesting times we live in, eh?  

That got some thoughts swirling around my addled brain about a number of somewhat  related issues; the bailouts, stimulus, Jeb’s roads plan, Keynes, NAFTA, health care reform and did my economics professor go on to become the mayor of Barre?

I’ve always been a bit of an economics geek and love to look at things from a macro perspective, ever since Econ classes with Peter Anthony at Castleton (same guy?), and there are a few underlying macro things that need to be considered in the context of these economic issues we’re facing today. So I’m going to lay out my macro thoughts for some context along with my personal economic advice for the benefit of the incoming Treasury Secretary and our state government.

I’ll tease with the specifics of my advice:

-Federal bailouts should always be tied to direct government oversight of the companies’ operations.

-Vermont should be an incubator for Obama’s energy plans as well as health care.

-The Vermont stimulus/jobs plan should happen, but it should be focused on energy efficiency and internet connectivity.

more…

Over the past generation or so, capitalism has been successfully promoted by the right as the essence of American greatness. But capitalism alone is not what has driven the US to real economic growth. Real growth should be measured not in terms of the Dow or even GDP, but generally in terms of the American dream of having the opportunity of working hard and improving your lot in life, and handing your kids a better future. Real growth actually hasn’t happened for a generation, despite what the capitalism promoters tell us, because it turns out that we were all improving our lives solely on borrowed (credit) or fleeting (home equity) wealth. (And to answer the question on VT this Week, that’s why we’re not going to spend as much on gifts this year, despite our paycheck staying the same. It’s not just psychological.)

Capitalism should not be abandoned. But it does work best for our country only when coupled intelligently with regulations that foster competition. The engine of fair competition fueled by the aspirations of American workers and small business owners can produce system-wide benefits for all and a better standard of living for each successive generation, but only if the proper regulations are in place to channel the energy in a beneficial direction. I don’t mean Soviet economic planning, simply a fair set of ground rules that equalize the playing field, provide transparency to educate consumers, keep barriers to entering markets at a minimum, and prohibit non-competitive advantages like monopolies. You have to keep the power balance at a point where the actual competition can happen to drive innovation and efficiency.

So in the long term, and looking back over the failings of the government leading up to this crisis, the regulation we need and needed is/was not to have government run businesses, but to set smart competitive boundaries which will channel their drive into improving the overall markets, not just enrich the few at the top. For example, congress did not necessarily need to ban derivatives or subprime mortgages, but it should have regulated the amount of capital backing needed to guarantee these markets.

In some of the bailouts in the short term though, I think we need to look at things very differently. The justification for these rescue funds is essentially that the company is so big and such an integral part of our economy that it serves some vital public good. So far though, the bailouts have been fed into the existing system that is not focused on public good but company and shareholder profits and growth. It seems clear that as is they are bound to fail. CEO’s are not going to have a sudden epiphany and start running their companies for the betterment of mankind. If we give GM billions because we want to protect jobs, what’s to prevent them from cutting jobs anyways to better their bottom line? The motivations are simply not aligned with the funding. So in the case of bailouts particularly, it seems clear to me that we do need government to take actually control of businesses.

How about converting some GM factories to making solar panels? Or IBM if they get into layoffs?

That brings us to Vermont… I like the general tone of Spaulding’s proposal and I support the gas tax with prices so low, but better roads will not improve our economy much over the long haul. The rural electrification and federal highway programs of the past helped because they resulted in a new platform for productivity. Roads are not the answer now though; internet connectivity and alternative energy technology are. Bringing the internet highway to every corner of VT will boost our economy and provide a strong return on investment. Funding weatherization and solar panels for VT homeowners would be as effective as a direct cash stimulus to the people who need it most, would provide jobs, and would have a the added benefit of energizing the energy technology sector in our state. Get Sen. Leahy and Gov. Douglas to work together to tie this plan to an Obama energy initiative to help with funding and we’d really be cooking with gas!

Or solar power, I should say.

• Obamawatch: On the one hand…. From NYT:
  

  In the Democrats’ weekly radio address, Mr. Obama said he would direct his economic team to craft a two-year stimulus plan with the goal of saving or creating 2.5 million jobs. He said it would be “a plan big enough to meet the challenges we face.”

  Mr. Obama said he hoped to sign the stimulus package into law soon after taking office on Jan. 20. He is already coordinating efforts with Democratic leaders in Congress, who have said they will begin work next month.

  Advisers to Mr. Obama say they want to use the economic crisis as an opportunity to act on many of the issues he emphasized in his campaign, including cutting taxes for lower- and middle-class workers, addressing neglected public infrastructure projects like roads and schools, and creating “green jobs” through business incentives for energy alternatives and environmentally friendly technologies.

  Sounds excellent.

• On the other…. From Sirota:
  

  In my column last week, I praised the Obama team for suggesting they see the political and policy danger of backing President Bush’s proposed NAFTA expansion into Colombia – a country with one of the worst human rights records in the world. But now I see this little tidbit from Inside U.S. Trade:
  

  House Ways and Means Committee Chairman Charles Rangel (D-NY) in a wide-ranging interview yesterday (Nov. 20) expressed optimism that President-elect Barack Obama will support passage of the Colombia and Panama free trade agreements during his time in office…
  
  “I did not talk directly with the president-elect over Colombia, but everything that I heard from those people that [are] talking with him, [is] that he thought he could handle that and get it passed during his administration,” Rangel said.

  Rangel is the chairman of the committee that oversees trade, so this can’t be chalked up to uninformed speculation – this is likely real, though by no means concrete (and perhaps flavored by Rangel’s wishful thinking). Team Obama knows 70 new Democratic members were elected on explicitly anti-NAFTA themes, they know Obama campaigned throughout the industrial Midwest promising to change our trade policy; and they know that in the third presidential debate Obama explicitly reiterated his opposition to the Colombia Free Trade Agreement.

  They’re going to have to weigh all that against the pressure they’re feeling from their corporate donors to pass this NAFTA expansion.

  Sounds sucky. Interesting mix of signals, eh? But we knew our work was just beginning, right? Stay tuned and stay loud.

• On less weighty matters…. No Speaker-race news, but just try and say “Shap Smith” ten times really fast.