Public Infrastructure

President Barack Obama has launched the US midterm campaign season with a series of major economic initiatives. They include plans to fix America’s crumbling infrastructure, to increase and make permanent research and development tax credits, to create new incentives for small business and to extend the Bush tax cuts for the middle class. Each idea has been met by a predictable chorus of predictions that they could not pass in the current US political climate. While the environment is indeed bleak, the economic situation confronting America warrants a different response.

Mr. President:

With hopes of a V- or U-shaped recovery fading, there is the increasing prospect of an L-shaped future of long stagnation, or even a W-shaped future in which W stands for something worse. The reason for this dismal outlook is economic policy is trapped by failed conventional thinking that can only deliver wage stagnation and prolonged mass unemployment.

Your administration’s current economic recovery program has been marked by four major failings:

The US is suffering from the worst labor market crisis since the Great Depression.  After hitting a high of 10.1% in October of last year, the unemployment rate has stalled at 9.6%, more than double what it was in 2007 before the Great Recession gripped the economy. The primary culprit behind today’s high unemployment rate is inadequate demand.

In July 2008, in a memorandum for the Obama campaign team and later published in Challenge,  I wrote as follows:

If the above analysis is correct, the political capital of the new presidency risks being depleted, quite quickly, in a series of short-term stimulus efforts that will do little more than buoy the economy for a few months each. Since they will not lead to a revival of private credit, every one of those efforts will ultimately be seen as “too little, too late” and therefore as ending in failure.

Can there ever be another Silicon Valley, in the United States or anywhere else? What makes it so special?

One thing is the weather. You think I'm joking, but the weather is certainly a part of it.

Yan Qi spent most of her childhood living with her grandparents in a mountain village on the outskirts of what is now the world's fastest-growing city. It was always raining, she remembers, and nothing much seemed to happen. With no bridges to cross the fast-flowing Yangtze River, the nearby town center -- today a 40-minute drive away -- took several hours to reach by long-distance bus.

The 21st century will not be dominated by America or China, Brazil or India, but by the city. In an age that appears increasingly unmanageable, cities rather than states are becoming the islands of governance on which the future world order will be built. This new world is not -- and will not be -- one global village, so much as a network of different ones.

On a recent visit to the Gobi desert, which stretches across China’s western Gansu province, I came upon an unusual sign. In the midst of a dry, sandy expanse stood a large billboard depicting a settlement the government intended to build nearby — white buildings surrounded by lush, green, landscaped lawns, and in the center a vast, gleaming blue reservoir. The illustration’s bright colors were quite unlike the actual surroundings, which consisted of dull sky that faded into a horizon of undulating, parched-brown hillsides.

The promotion of the renewable energy industry is central to the Recovery Act and the Obama administration's broader economic recovery program, but it is unlikely to create enough jobs or have a large enough domestic multiplier effect to contribute significantly to the economic recovery. It reflects an ambition to transform the economy into a green energy leader of the 21st century and tackle climate change. But these investments are a questionable short- or medium-term generator of growth and jobs.