America's Portfolio - Obama's Spending Agenda

Keynesian economists often make the point that governments have the power to invest taxpayer dollars - or borrow internationally - to invest in projects that will bring a positive return on equity in the form of GDP growth. If you build a road, things will drive things from one place to another on it. Infrastructure investments in the Great Depression founded a model for 20th-century growth. The IMF stimulates developing economies by lending money to cash-starved countries for power, water, sewage, and road projects.

We have elected a Keynesian, and he will spend. Barack Obama's administration faces a number of choices on how to wisely invest taxpayer dollars in the coming four years. We have learned from the last 20 years that housing does not provide sustainable GDP growth; a home does not provide much in the way of economic utility, and the large, inefficient structures that became increasingly popular toward the end of the boom were unsustainable resource traps.

May I suggest:

1.) Energy. America's immense natural gas, coal, and alternative energy sources must be tapped. Private companies face tremendous headwinds in remaining profitable and development is consistently scaled back when oil rollicks from $150/bbl to $50/bbl in the space of months. This is an opportunity for Keynes to step in so America can realize the economic and noneconomic benefits of alternative energy as soon as possible. Asking nascent alternative energy companies to withstand this price volatility is folly.

2.) Infrastructure. America's roads, bridges, and highways are structured around the suburbanization of society. We need intelligent allocation of resources here; build roads where they will stimulate economic activity. And we need more, better public transportation to make more efficient use of the power grid.

3.) NOT health care. Health care is a losing bet with an aging, overmedicated, unhealthy population. The political and social costs are high, but the economic costs are unimaginable.

That said, there will be a Federal system here. All employed Americans should receive health care to KEEP them employed. Health care should be subsidized while receiving unemployment, but the terminally unemployed and retired should be on their own. We can't afford for Americans to live forever or remain out of the workforce for too long, and the incentives must be aligned properly to that end.

Further to the point of incentives, the government should heavily punish drug use, alcohol abuse, smokers, the healthy obese, and criminals in this program with surcharges for risky behavior.

4.) NOT defense. This budget cries out for reduction in every way imaginable. Given our risks at home and abroad and our weak diplomatic position the ROI on defense spending has never been lower. Every last item in the Federal Budget allocated to defense spending should undergo a very strict review, and we should re-align it toward research instead of managing dozens of conflicts globally.

5.) Debt amortization. Our Federal debt is becoming a dangerous burden. Debt service is weighing heavily on tax receipts, and we are in danger of incurring higher costs of capital. If Obama allows our debt rating to slip he has done us a great disservice. If he allows us to default on our bonds we will have ceased to be a superpower; the dollar must maintain its status as the world's reserve currency.

How can a Keynesian justify reducing debt? Simple - by acknowledging that we already have deficit-spent to no avail for 8 years. Obviously this is a second-term or latter-first term goal conditional on our economy stabilizing from its current free-fall.

6.) NOT domestic industry bailouts. Banks were arguably vital to bail out, but no more. The bailout game needs to be over now; if existing industries were worthy we would not be in this mess. It's time for a little creative destruction in our bloated debt-and-retail economic model.

7.) Education. To steal a line from John McCain, education is the civil rights issue of the 21st century. But more importantly than that, it's also the future of our economic growth; we need to keep educating our children so that our economy can maintain it's advantages in white-collar service sectors like medical research, finance, engineering, technology, etc. It is bad news if our comparative economic advantages bloom in the unskilled labor sectors, unless you want the BRIC-country standards of living amongst laborers washing up on American shores.