The INcoming President Needs to Fix Our Economic Mess

Whoever takes office in January of 2009 will inherit one of the toughest economic situations in America since the Great Depression - and in real terms, it is an even worse mess because recovery is now on a global scale.

More than two years of steady economic downturn that were fueled by what was ultimately a false housing boom (aggressive lending, artificial price inflation designed to prop up an already sagging economy) and coming to terms with the paycheck for two lingering wars are, frankly, staggering issues to take on at this time. They are so staggering that no one seems to be talking about them during the election. It won't matter who was pro-life and who was pro-choice when our country is so mired in devalued dollars and a credit crunch of global proportions that access to public funding for abortion will no longer be an issue any more than affordable access to public health care in general will be for the dissenfranchised masses.

Right now the wrong choices continue to be made and our country continues to travel collectively downhill economically. Rather than aggressively imposing fuel standards and design requirements on our American auto industry to make it more competitive and slow the progress of closing plants and outsourced work and sales of US interests to foreign companies, our government has stalled on this issue and only the basic survival instincts of GM, Ford and Chrysler and the reality there are Toyota, Nissan and other plants in the US, will create the auto market we will need to power into and through the next decade. Americans and American companies, from municipal agencies to Fortune 500 companies, need fuel efficient, lower emission vehicles. Demand for fossil fuels needs to be decreased at the same time our auto industry needs a shot in the arm. Oil prices won't dip much below where they are currently, and tapping into a faraway wildlife reserve or engaging in offshore oil exploration are not guaranteed to return any long term let alone any short term fuel price relief. More than that - the cost of exploration is going to be borne at least in part by US taxpayers. Oil companies did not get as fat as they are by taking undue risks, so they will want partnership in exploration unless they are guaranteed results. That is an economic reality. Add to that the reality our foreign and economic policies, especially since 2000, have helped spike the price of OPEC oil, and the clear path to take for fuel self sufficiency and economic recovery is to build a better wheel. If America wants the benefits of that wheel, it better build it here. Today, very few wary consumers are going to purchase hybrid American SUVs with lower overall mileage raitings than the Toyota Prius and the redone Honda hybrid. Five passenger vehicles with proven records of reliability and fuel efficiency will win out, especially if their prices are competitive, and Honda intends its refurbished hybrid to cost less than the Prius. So, again, why would US consumers spend $30-40k on hybrid SUVs from Ford or GM when they can get a five passenger vehicle for $20k, or a Smartcar for $15k?

Rather than hit Americans with the fear factor that without offshore and arctic drilling oil prices will continue to spike, US decision makers should be working at the EPA and elsewhere to impose ever more stringent fuel and reliability requirements on US made vehicles. We cannot afford this far down the road to make the same mistake made when we abandoned the fuel policies of the 1970s oil crisis. We can't temporarily prop up US automakers by replacing Corollas and B210s whose sales were outstripping the less reliable Vegas, Pintos and Chevettes with ever growing SUVs and luxury sedans that consumed ever larger amounts of fuel - increasing our reliance on foreign oil and leading to some of the very policies of intervention that were viewed as somehow self-preservation. We should have focused on home more and focused on performance on the international scene. In how many other countries are people driving old, rickety US made 'economy' cars of the 1970s, and yet you see Honda Civics and old Corollas still chugging along. We should have pushed the envelope of fuel efficiency instead of letting it fall by the wayside. We also should not have abandoned experiments with alternative fuels or we would be much farther down the line today with fuel cells, biofuels and even hybrids than we are. And it is striking to me that one of the new anthems of self-detmination is to resurrect the natural gas vehicle - which was heavily experimented with in the 1980s (as sort of the token alternative fuel goernment experiment) and into the 1990s, but which has long since been forgotten. Most would see such a suggestion as a tired, retread of an old idea that still kept us captive to a finite resource - natural gas, which is cleaner than gasoline, but already widely used for electricity and widely drawn upon as it in. Except, today some wealthy US businessmen have interests in developing more natural gas, including in the more expensive liquified form (which has to be shipped from other countries and which will require offshore facilities to offload into our pipelines) - hardly keeping us self-sufficient. It's not that natural gas is suddenly good for us again and somehow better than all these other technologies, including purely electric cars, it's that creating a market for LNG and natural gas will open a window of opportunity for some American energy interests that had previously been foreclosed. It's not a bad policy, it's just whatshould be a fallback or third tier plan in conjunction with much more visionary and problem solving programs to expand the use of other fuels while reducing overall usage.

So, we need to recognize there is not one saving technology - but a broad spectrum of new technologies that may eventually replace and for the time being at least work alongside our gasoline engine cars. Step one of any plan is to decrease demand and make ourselves less captive to foreign resources and even to our own finite, resources of oil and natural gas and develop automobile technologies here that keep our long term consumption down. This also involves long term transit planning to get more cars off the road, period, and focus on some rail options. Yep, would sure love to hear what McCain and Obama have to say about all of this - if either of them has a clear path to America's economic recovery on the energy side, beginning with how to deal with our love affair with the car.

And, looming even above this issue is what to do about the long term credit crisis in America. It didn't start with home buyers overextending themselves, it started with widespread loan speculation, risky lending practices, and collusion to inflate home prices to prop up certain sectors of the economy. Yes, many, many homebuyers fell into the trap, but a trap it was. If homes remained affordable to all and rents remained affordable, nothing was driving the tax coffers and housing starts remained static, and lending also remained static. So, because no one was really watching how things unfolded and because we have become a nation capitive to the credit score - we didn't notice more and more loans being shifted from banks to so-called sub-prime lenders. Many people who would and should have qualified for conforming loans at rates within a couple percentage points of the prime lending rate, were given adjustable rates and higher fixed rates and were allowed to borrow 100 - 110% of a home's value even as home prices began to dip. People wonder why banks would engage in such speculation since surely many of these loans would fail - and the reality is, many of the lenders had overextended themselves and they needed to show more assets and also to get more money in the door form new loans to make their own payments and to continue to attract investors.

And, at the very bottom of this pyramid of speculation and overextension of credit was the lowly residential buyer trying to get into a home while a home was still within sight. Though economic forecasts in 2005 really foreshadowed the thunderous burst of the bubble, realty groups and lender groups said the picture was still pretty rosy. Millions and millions of homes have been foreclosed upon and millions more face the same fate. The very same institutions that propped up the price of a home artifically and pushed it ever higher, are now rapidly deflating home values and hurting the average American's standard of living and bottom line by short-selling foreclosed homes or auctioning them off. The reality is, a home purchased in 2005 for $400,000 with zero down (but hefty loan fees) and an initial 8.5% rate for a first time buyer with virtually no credit history but a good income (who shoud otherwise have qualified for a better rate in that timeframe) raked in $12-15,000 in closing costs to lenders, and brokers (and maybe a kickback to the realtor for the referral and loyalty), and in two years at $3,000 a month payments, another $72,000 has come in the door. When the rate adjusts up and the payment goes to $4,000 and the borrower can't renegotiate because the lender has, frankly balked and made him jump through hoop after hoop without actually locking in the rate, the partial and late payments begin. In six months the borrower could be in foreclosure and the house is probably valued at $360,000, but would go for $10-15k more with a little spruce up or time. Instead the bank forecloses and does a quick sale on the house at $340,000. In this scenario the lender is actually more than made whole as it has a quick influx of cash from the sale, plus the $80k in payments it has already received, most of which was interest.

The impacts of this type of activity are that more and more borrowers are without homes and have lost their savings during a time of constrained jobs and wages and severe consumer inflation - while (some) banks are still able to go out and attract capital. And, if a bank fails or is failing, the government bails it out. That is a costly endeavor, much more expensive than adopting a home rehabilitation policy to keep buyers in their homes and keep them paying on them at reasonable interest rates. The bail out of banks and lending institutions becomes a burden on the treasury and when the treasury is burdened, taxes are increased. When taxes are increased consumer spending is down, standard of living is down. The average American, the one who earns between $50-150k a year and who has enjoyed a reasonable standard of living, is hit very, very hard by this cycle. And, of course, those who make below $50k a year suffer even more. Those who survive best are the less than 2% of the population whose household income exceeds $200k. And with each new economic downturn, each time the dollar suffers on the international market, each time plants close or corporations downsize, the standard of living between the below $150k and the above $200k diverges more.

In a credit crunch like the one we are experiencing now where it is virtually impossible for ANYONE to refinance their home or to get access to new credit and where unemployment hovers above 7%, the downward movement of the American way of life for more than 98% of Americans is abundantly apparent. Ten years ago it would have been unthinkable for a $125k a year executive with $150k in retirement savings to be laid off and facing losing his or her home within three short months because a replacement job cannot be found, and to be facing homelessness within a year. But, today, that is a scenario being lived out all across this country, but especially in its higher cost of living areas, along its coasts and in the major cities and their suburbs.

All of this is what our next president is inheriting and resolving all of it should be job one. Yes, it's important to talk about dreams and unification (and indeed, the latter will help in getting the country behind tough policies), and it's great to talk about prayer in schools and an end to abortion - but none of those things make this country what it should be, what it was, what it could be again - a great example of pluralistic democracy and capitalism. Back in the day when we broke the trusts and removed the policies that led to the last big crash, we thought we wouldn't have to deal with those issues again - but here we are, with so many huge mergers in our wake that eliminated jobs, left whole towns without their economic center, moved jobs from Tucson and Minnetonka and Santa Rosa to east Asia. Little banks have merged into mega banks. Retail is big box. There are basically two large communications companies in this country even though the amount of communications services has grown exponentially. We took our eyes off the machine. We didn't maintain the basics of unchecked capitalism. And perhaps, in our naivete, we thought we could go off to foreign lands and prevail and snatch economic victory from the jaws of foreign reliance defeat. But, we were wrong.

Banks need to be regulated. Lending needs to be regulated. We need to look at how we've broken down every American to a tiny credit score that says less about their risk and more about the frequency with which they obtain credit - a vice our country should begin to rid itself of too. We have the largest national deficit and the largest national spending in history. There is no such thing as little government any more. We build new agencies with basically duplicative duties to existing agencies right and left - and then we wonder when they can't communicate effectively or why they end up spending more for a toilet seat than some people pay for cars.

In our quest for might, for wealth, we have lost our own greatness. We are a divided people facing more economic uncertainty than our Dust Bowl and long departed great-grandparents. We have no rails to take to, no sense of undiscovered country or new horizons of hope. We need papers to travel everywhere and we want to build a wall to keep out immigrants from a single direction - believing firmly that if we eliminate the existing underclass then no underclass will exist.

It doesn't matter if your nostalgia is for "Morning in America' or for an earlier president's plea to not "ask what your country can do for you, but what you can do for your country" - no one is laying out the answers that wil help us collectively redraw our destiny away from division and deprivation and into cooperation and collective self-determination. For too long our eyes have been cast down looking for scapegoats on the ground, when in reality, the ability to effect change started at the top.

John McCain, Barack Obama, do you have the answers? Are you willing to ask the tough questions and admit to how difficult the next four, eight or more years are going to be? Will you tell us how we can all work together, with you at the helm, to recreate the American way of life?