Sunday, February 22, 2009

Recession Special Series: Three Cheers for Liberty (Part 5 of 6)

NEW YORK, New York -- Sorry for the delay in posting the conclusion of the "three-fer" series on low-cost policies the US can and should pursue to improve itself and its citizens' lives -- we at the Walter Duranty Report were busy looking for a subprime mortgage, and it sure is tough these days to buy a $1 million in California's Imperial Valley when you don't have a job.

Today's trifecta of cheap-but-not-in-a-slutty-way policies all aim to increase liberty, either in the most common, political definition of the word, or economic liberty. Clearly we were scraping for an umbrella theme to put these under.

1. Let's have some truth, and reconciliation: George Bush, purveyor of Democracy With a Big Freaking D, gave us liberty at its best: Unwarranted telephone wire-taps of US citizens; secret prisons and "extraordinary renditions" for uncharged terror suspects around the world; suspension of habeas corpus for suspects imprisoned on US territory, including US citizens; torture; politicization of the Justice Department; fishy ten-fingers boosts to businesses it favors ("Halliburton, don't want to bid? Why, this is your lucky day!"); and falsifying and manipulating intelligence to go to war (leading to tens of thousands of deaths) under false pretenses.

OK, so maybe you've heard about the tag-team hooker joke involving Bush, Cheney and Lady Liberty ...

Given all of those little pokes in the red eye of freedom, it's probably not surprising that many Americans would like to see a knee-capping of Bush and his cohorts. What is surprising is that the overwhelming majority of the American public wants legal action of some sort taken, according to a survey earlier this month. Depending on the violation in question, 62% to 71% of the country would like to see either a criminal investigation or panel investigation of Bush-era practices. Senator Patrick Leahy of Vermont, recipient of a "fuck you" from Dick Cheney some years back, is pushing for a commission to determine in exactly what ways the Bush White House abused its power, to head off any repeat episodes. What form any investigation or other legal action might take is explored in a New York Times piece today.

And yet President Obama is not inspiring on this count. He has implied that he is against any Congressional or other investigation or truth commission. As is becoming more and more apparent to reporters covering the terror beat, much of Obama's war on terror resembles Bush's. Just as Bush ludicrously prevented any of the "extraordinarly rendered" terror suspects it whisked across the globe from receiving trials by arguing that their cases were "state secrets" even federal judges were not privy to, Obama's lawyers are upholding the "state secrets" argument. The Justice Department decided Friday to adhere to Bush policies of holding "enemy combatants," Dick Cheney's made-up term, indefinitely without charge in Afghanistan. And the Pentagon has just "concluded" that Gitmo does not violate the Geneva Conventions establishing standards of humane treatment for POWs.

Combine that with Obama's expansion of a clandestine robo-war in Pakistan (OK, they're unmanned drone aircraft, but this is a robo-war if I've ever seen one), which as a CIA operation the US government officially will not comment on, and things are not looking good for liberty. Cost to the federal gov't: Whatever it costs to turn Obama from the Dark Side.

2. Beef up manufacturing incentives: It's not news to anyone that the economy of the Bush years, like everything else of the Bush years, was illusory and shite-y. Nor is it news that the decades-old decline in the US's manufacturing capacity accelerated dramatically during the Bush years (sounds like a Born Again version of a TV show, doesn't it?). But it sure is amusing that the economy during that time, measured by the loss of manufacturing capacity, was so garbageaceous that the internationally reviled "Buy American" provision of the stimulus bill looks largely toothless because, well, since nothing is made in the US, the impossibility of following Buy American means it won't be legally binding.

But what's funny today is disastrous tomorrow. Reliance on foreign countries for the things we actually need and use in life (the things waiters, lawyers, nail-salon employees, consultants and plastic surgeons don't make) is the next great bubble that we should see coming. And just as the country conveniently ignored the danger of securitizing subprime mortgages and selling them to Norwegian fishing villages, few today are awake to the threats the decline of manufacturing causes in an economic, fiscal or strategic sense.

So without sounding too much like Lou Dobbs, in order to reclaim economic liberty and the liberty of being able to make geopolitical moves without worrying about how the countries that supply you with your toothbrushes, sneakers and computers will react, Washington should move to bring back it manufacturing base -- and perhaps the middle class with it.

Here are some ways to do it:
a) Offer competitive R&D tax credits. This $7 billion tax credit was actually part of the wildly unpopular TARP of last October. When Congress first introduced R&D tax incentives, it was a global innovator in doing so. In recent years, however, America's R&D tax-credit competitiveness has slipped to 17 out of 30 among OECD countries. And before the TARP re-established tax credits that can be applied to up to 20% of R&D spending, the US Congress in its pre-eminent incompetence had allowed 10 months to pass during which there were no credits at all as congressmen demanded more comprehensive tax legislation before re-introducing the R&D tax.

b) Re-introduce CapEx tax credits. This used to exist but no longer does. Why, we can only guess. But if the US wants a functional (i.e., not based on subprime mortgages and a trashed Wall Street) economy, it needs to re-embrace manufacturing. Doing so means making it attractive for companies to open factories and fill them with machinery.

c) Sponsor manufacturing incubators. As a candidate and president-elect, Barack Obama had two excellent ideas in his economic policy platform: an Advanced Manufacturing Technology Fund that would fund basic research toward manufacturing technologies that would allow US companies to develop and purchase new machinery to make US manufacturing lower-cost and more competitive; and doubling the budget of the Manufacturing Extension Partnership, a public-private venture that was previously successful (before getting slashed by Bush) in identifying cost-cutting strategies and efficiencies for manufacturers and implementing new technologies in factories. His current economic platform, however, is a skeleton sketch for the already-passed stimulus bill. Barack, what gives?
Cost to the federal gov't: $7 billion to double the R&D tax credit, $14 billion for a similar CapEx tax credit, $1 billion for the technoloy fund, and $100 million to beef up the MEP.

3. Embrace the nudge. To provide future generations of Americans with financial liberty, Obama should follow the behavioral economics teachings of Richard Thaler and Cass Sunstein and embrace the nudge. Assuming Obama stops acting like a moron (see above, on "War on Terror") and rediscovers his UChicago self, this is feasible -- after all, Sunstein has just been nominated to oversee nothing less than all regulation in the US, and Thaler is a UChicago colleague and friend of Obama economic adviser Austan Goolsbee. "The nudge" means that an organization helps people make an enlightened decision. In this case, it'd be government.

But what is this exactly? Suffice it to say that Thaler's favorite application of the nudge is the fly decal on the urinals in the Amsterdam airport. Airport officials were worried about unsanitary conditions around the urinals (read: pee everywhere), so they identified the place in the urinal where, when hit with a stream of urine, would minimize spray. They put a fly picture in that spot. Men mosey up the pissoir, unzip and aim for the fake bug. And it's worked, apparently.

Thaler doesn't really want Obama to force airports from Houston to Bangor to clean up their pee puddles (though he probably isn't against it). What he's going for is financial and other higher-stakes nudging. Here's three examples of what that could be -- the start of a long relationship with nudging that Obama would do well to take up, and all for free!

a. 401(k) plans. This is how most of us build our retirement funds these days, and many people don't put enough (or any) into theirs, which means they'll kinda screw with the government and the rest of us taxpayers when they're older because they're lazy today. As Thaler argued, most people simply don't even take the time to sign up for a 401(k) out of sheer lassitude. Since the default option is not to have a 401(k) and you have to actually do something to sign up, Thaler suggests making the default having a 401(k) and letting people opt out. Same with credit cards, mortgages and other sorts of loans, which with their myriad rates, underwriters and suppliers cause much confusion. While government oversees only a small number of 401(k)s (for gov't employees) and loans, this policy could be applied elsewhere, including...

b. Medicare and Medicaid. The gov't health insurance plans are known for confusing lots of people because they offer so many alternative medicines and pharma companies for every ailment. If you have arthritis, Medicare may prompt you to say what medicine you want, giving you a list of 20 pharma suppliers. In the Economist, Thaler suggests taking best practices and "nudging" those on Medicare or Medicaid toward the best, simplest plans and treatments to cut back on confusion, mistakes and cost overruns.

c. Childhood trust funds. As introduced in the UK, these state funds would provide every child with a small fund upon birth to provide all kids with some flexibility when he or she is 18 and the fund has matured. Obama spoke during the campaign of establishing such funds in the US and particularly of linking them to higher education. That would arguably be smarter than the UK policy -- knowing you can only touch your $5K if you go to college would be a potentially effective way to get inner-city kids to take school more seriously.
Cost to the federal gov't: Nothing more than the already-existing bureaucracy to oversee these new policies.

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