8-Point Economic Recovery Plan

by Win Wenger, Ph.D.
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  1. Head off further major damage. [We do need to make the auto industry “bridge loan” under key conditions]
  2. Regain control and conditions over the huge trillions already being lavished on the very finance industry whose misplays brought on this recession/depression.
  3. Stimulus: “Firesale on Capital”
  4. Stop the hemorrhage: “de-gas gasoline engines.” Our energy policy is also our economic policy.
  5. Extra tax credits, other incentives, for investments in innovation, inventing, science, even more in basic science, and in development of new products and services.
  6. Similar incentives developing the green economy, and as regards American infrastructure.
  7. A very slight reform, with large consequences, of the patent system, to further encourage innovation and invention.
  8. Inexpensively convey creative problem-solving (CPS), innovation, inventing and discovery-making skills to most small-scale entrepreneurs and small businesses.

These are not the only points feasible for an economic recovery plan. However, whatever plan is undertaken, these eight points should definitely be included among them

Point 1
Head off further major damage

W. Northcoate Parkinson was correct. The absurdly astronomical trillions already lavished on the financial sector – the people who got us into this recession/depression in the first place – went through almost without debate, without pre-conditions, without transparency, and without supervision. Provision for our staggering core industry, the Big Three automakers, one-fiftieth the size of what we so blithely bestowed upon the financial sector – well, that smaller sum, people can get their minds around the mere $36 or however many billion proposed, raise all sorts of objections, debate it probably to extinction. The failure of the Big Three would at one stroke double the depth of our recession and multiply by twenty or more times the obligatory cost to the taxpayers compared to this loan package. Our entire system for handling these matters is irrational and we can ill afford to collectively do a Plaxico Burroughs and shoot ourselves in the foot – again. One such Great Depression – following the Smoot-Hawley Tariff wave of protectionism – is more than enough.

Point 2
Regain control and conditions over the huge trillions already being lavished on the very finance industry whose misplays brought on this recession/depression.

Immediately suspend “golden parachutes” over some minimal figures, by law, for any financial firm recipient of key designated portions of this largesse for so long as that funding is outstanding; also specify transparency, also specify a proportion or percentage of the funding infusion which must go into fresh business and consumer loans within 60 days of receipt; other measures as appropriate. Note the distinction between the need for long-term regulations, which should be most carefully designed, and conditions which, though temporary, pertain for so long as such funded accounts are outstanding – an added incentive and assurance that the taxpayer will, in fact, see his own funds come back.

Point 3
Stimulus: “Firesale on Capital”

…which I’ve written about here before and the description of which is now online for your inspection at Several Partial Proposed Solutions to the Economic Crisis Induce a restart of the essential flow of credit and capital by the Fed providing a “sale” on capital the way any entrepreneur holds sales to clear backlogs, providing – for an announced two months only – even lower interest rates than the system would ordinarily dare to go. This can be done without real damage to the long-term costs of Treasury borrowing to recycle bonds and notes, and to our currency, while inducing firms and financial institutions to make their credit arrangements during those two months of exceptionally lowered rates, thus re-starting much of our stalled economy. That re-start can feed on itself, just as our avalanching collapse has.

Point 4
Stop the hemorrhage in our world trade balance of payments: “de-gas gasoline engines”

Our energy policy is also our economic policy. Even with the recession, we are sending abroad more than a half trillion dollars a year for petroleum and maintaining America’s abject and shameful vulnerability to oil blackmail. Bio-fuels and alternative fuels are stalled because there aren’t enough vehicles using them out on the road yet to support the necessary network of production and distribution resources. Ethanol has been a farm subsidy, not a serious attempt at an energy solution – at least here in the USA. We even have a protectionist tariff on ethanol from Brazil, which did indeed make ethanol a spectacularly successful part of the energy solution there. There is no competition between ethanol prices and gasoline prices – in fact, ethanol is pre-mixed in at the pump so you don’t even have opportunity to choose between them.

Solutions:   Dr. Robert Zubrin, in his guest article at How to Free Us from OPEC and elsewhere, proposed that all new cars sold after a future date in the USA be mandated to be either flexfuel or alternative fuel, parallel to a proposal in President-Elect Obama’s campaign website to the same effect by or before 2012. Flexfuel vehicles cost very little more, can use gasoline so long as that’s the only fuel supplied in the neighborhood, and are there as a market when the producers and suppliers of bio- and alternative fuels can get to that neighborhood to compete with gasoline fuel prices.

Now that the automobile industry is waving its tin cup around the U.S. Capitol, we don’t even need such a mandate to achieve the desired result – simply make into one of the conditions for the bridge loans, that none of this money be spent to produce engines which are gasoline only. That assures substantial production of flexfuel and alternative vehicles; that ensures a substantial market for producers and suppliers of bio- and alternative fuels; that ensures competition in prices between fuels at the pump; that ensures stable moderate energy costs; that assures a rapid end to our annual trillion-dollar petro-hemorrhage in America’s balance of payments. (We will, however, need to work out an offsetting benefit for Canada, which is where most of our petrodollars go currently.)

Point 5
Extra tax credits, other incentives, for investments in innovation, inventing, science, even more in basic science, and in development of new products and services

We can’t re-start the economy selling the same-old same-old. People have to want what we offer in order that they buy from us. Positive incentives cost far less than do mandated policies requiring enforcement and policing, especially if the burden of proof is on the firm to demonstrate that it has done what qualifies it to receive that benefit. Please see our brief discussion of that aspect in the last portion of Several Partial Proposed Solutions to the Economic Crisis (op.cit.).

Such painless incentives can be used to directly create the means of future, solidly stable, open-ended economic growth at just about as high a rate as we please. We can even grow faster than China, and use our experience plus further well-designed positive incentives to achieve such growth without China’s growing-pains. This is the ultimate anti-poverty program. (The reason for the extra emphasis on basic science, contrasted to applied science, is that the more basic type of research yields vastly higher payoffs. That reflects the tendency to spend far less on the basic because its benefits don’t divide up conveniently to the provider – the firm which does a unit of such research is not usually the firm which gets the most benefits from that unit of research. Basic, open-ended science yields unpredictable results with benefits landing all over the national and world economy.)

Point 6
Similar incentives developing the green economy, and as regards American infrastructure

Both of these have been discussed extensively elsewhere so I need not repeat that discussion here, except to note that the same consideration, for positive incentives costing far less than mandated standards and policies needing policing and enforcement, holds again here as well. Overall, we really have no choice but to invest in a green economy, and we have no choice but to repair and rebuild our dangerously debilitated infrastructure, and the best time to do so is right now when major economic stimulus is so badly needed.

Point 7
A very slight reform, with large consequences, of the patent system, to further encourage innovation and invention

As matters now stand, our patent system which was instituted to provide secure income and an incentive to invent to those who contributed inventions to America’s economy, has served more to suppress competing and novel inventions than it has to protect inventors. A very slight adjustment – described in Reform the U.S. Patent System – would fix that, and create a major new positive force impelling future economic growth, both in terms of international trade balance and in absolute terms.

For those inventors who wanted to avail themselves of it – and for those producers who wanted to also avail themselves of it: an institutional arrangement and clearinghouse, private and/or public wherein anyone could produce freely anything offered in the clearinghouse so long as he pays 2% of gross receipts there from to the inventor and 1% to the clearinghouse, which institution would prosecute to enforce that standard on behalf of the inventor. The existing patent system would be virtually unchanged, except that some international agreements would need to be worked out for protecting the interests of inventors who took this alternative route. On the one hand, proposed easier standards for filing fees and for defining inventions, intended to give independent inventors a lot more much-needed traction, would also create opportunity for legal contests but on the other hand, where the stakes aren’t for 100% ownership but for 2% ownership of an invention, there’d be a lot less incentive for litigious excess. – And inventors would finally be getting paid for their products, which rarely happens now: this will result in a major and lasting surge in innovation, invention and future economic growth.

Point 8
Inexpensively convey creative problem-solving (CPS), innovation, inventing and discovery-making skills to most small-scale entrepreneurs and small businesses

Sixty years ago, Alex Osborn launched the worldwide creativity revolution: there are now hundreds of effective methods for creatively and ingeniously solving problems, in professional use around the world. However, for the most part they have been applied mainly on behalf of narrowly defined interests in large corporations, and have neither come into use at policy levels nor are widespread among the small-scale enterprises which are our greatest employers, enterprises which most need use of such methods, and enterprises which are the main source of our future economy. Some of the methods – for ingenious problem-solving, for innovation, for inventing, and for making discoveries – are easy to use effectively and easy to learn.

One of the most powerful ways that government could trigger open-ended rapid economic resurgence would be – perhaps through the Commerce Department or the Small Business Administration – to research these methods out and to find inexpensive ways to convey use of these methods to such entrepreneurs – at all levels of the economy – as are willing to learn and make use of them. One starting point for this:  Solving Problems, a directory of methods , noting however that there is not only this source, there are many methods and many sources for such methods. President-Elect Obama declared that change and recovery and solutions to our national problems must come from the ground up: this is one way to effectively act upon this principle.

Final comment for this round: regarding a proper role for government in a free market economy. An irreducible need for some sort of counterweight in the free market economy, does not necessarily mean an irreducible need for heavy-handed governing. The prediction, made in 2002 in my article, Mixed Economy, and earlier elsewhere, that once again the broad-sworded cut-back of government services to the public was going to result in so much additional public need that the net result would be a many-fold expansion of government and all its costs – that was not a difficult prediction to make, it having happened so many times before. Next time, please let’s reduce the NEED for government before we fix our attention and our blindered ideologies and our massive policies on cutting back on government wholesale. We can do that – we can greatly reduce the NEED for government – but only if we can step aside from the blinders of both the far right and the far left and start dealing with some clear realities, including those which Adam Smith defined for us in his book which made him the father of free-market economics, The Wealth of Nations, all the way back in 1776.

We don’t have to stay in this recession long. We don’t have to make recovery a slow and difficult process. We don’t have to limit our rate of economic growth. We do, however, have to take new directions, and pursue some very different strategies, from those we have pursued in the past.

Further Reading

Incentives as a Preferred Instrument of Corporate and Public Policy

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