Thoughts on the Economy

It has been a while since my last post. This is a busy time of year and I have had little time to post. My daughter is in the Washington D.C. area on an internship for college and I have been there twice in the past few weeks.

At the State House, our former Speaker had me working on a few issues in my committee. I had a reasonable assurance that I was staying there and he had me working on a few issues to help sustain our economy while not spending much money. We had been meeting with businesses, especially small businesses in order to find ways to help. This committee was designed with me in mind by our former Speaker. I love working to solve the complex problems of business to keep people employed. This is a problem that I have worked on since coming to the State House 23 years ago. It is a reflection of the tough times in my district. We now have a new Speaker and I have no idea what he will do, but it has been a great ride.

Some of the things we are working on are finding ways to fund new technologies. New businesses don’t have the same life cycle as traditional manufacturing and banks cannot react to this new cycle because of banking rules and regulations. I have had a few conversations with Congressman Frank and his office about looking to state and federal regulatory changes that would react to the new business paradigm. I have also been actively trying to get state government through their quasi-public agencies to look at loan guarantees for small businesses as well as a way to vette new technologies in order to give the financial industries a level of comfort with new technology businesses.

As example, the old industrial model could be a business buying equipment to build widgets. They would find a site, train workers, buy materials and equipment, and would start building and selling widgets. They would bill customers for widgets and banks lent money based on those receivables and business model. Today, a life science business may not sell product for a decade! Or a defense company may get an SBIR grant to develop new products but has no money to commercialize that product. In these two examples, banks can’t lend money without regulators penalizing the banks based on risk. We need to find ways to finance these businesses. And since new banks aren’t necessarily familiar with new technologies, it is hard to lend to these businesses based on their fiduciary responsibility to their shareholders.
We are also taking a look at streamlining our tax policy in order to treat all forms of telecommunication the same. Right now, we treat wireless companies different from land wired line companies. These are both treated differently than cable companies which are treated differently than satellite companies….I think you get the picture. We need to find ways to treat all of these companies the same way, tax them equitable, and still leave incentives for expansion of broadband services.
Much has been made of the federal stimulus package that, as of my posting, still has not been finalized. I have mixed feelings over the stim bill. We are running up deficits with each package that need to be paid back. We are expecting these packages to do far more than they are able to do. We cannot solve the world wide fiscal crisis with these packages. Still, it is important that we find ways to pump money into our economy and these bills need to maximize their impact and not just be expected to replace state revenues.

I will write a longer post based on an op-ed piece I am working on, but let me briefly point to some rules I believe we need if we are to pass such bills to stimulate our economy.

First, we can’t expect government to replace the role of private enterprise. There is not enough money to do so no matter how much we run up our deficits. Government has to be smart as to how this is spent and we shouldn’t become partners in banks or businesses as we have to let the marketplace recover with market incentives.
Second, we have to stop government policy that contracts the number of banks we have in this country. We need many smaller local institutions rather than a lesser number of larger institutions. If we contract the number of banks until there are a handful of large banks, we only make the problems bigger if there is a downturn. We were far better off with local banks making local decisions.

Third, that being said, we cannot let the market run wild, but need rules in place to stop what has been happening in the market for the last decade or so. The stock market has been irresponsible. They have made the investments made in the market more important than the underlying businesses that they are supposed to be financing. Investments are split up and sold again and again with little regard for the fact that money in and of itself only has the worth of the underlying assets. Of course the market has collapsed. A dollar is only worth a dollar no matter how much you try to squeeze out of it by selling on the margins. We need a strong watchdog to make sure that this doesn’t happen again or we are just resetting the market to make the same mistakes again.

Four, that means we need to recreate our economy in order to regain its market value. When I was young, a sheet of steel, for example, was sent to Detroit and a car was built from it. The creation of something from that sheet of steel added value and that was where the jobs were created. We need to recreate our economy in order to reflect those things we can do here. That means that we need to invest in the types of things we need now such as new technologies. Perhaps we no longer manufacture to the extent we used to, but in green technologies, life sciences, nanotech as well as others, we are leading the world in technologies and we need to capitalize on these opportunities. We also need to look at production here and realize that it may be more expensive, but we are far more productive than most of our competitors. In other words, it costs more to make a widget, but you can make more per hour and they are of better quality.

Fifth, we need to reclaim our place in the world economy. That is something that has been lost with the conflicts in Iraq and Afghanistan. We need a much more thoughtful policy regarding how we trade and we need to establish ties with different countries in order to maximize our position. In other words, let’s start trading with others rather than competing with them. That helps our bottom line and takes away a disincentive to stay in the US to manufacture and grow.

Six, we need to create a new infrastructure in order to rebuild our economy. We need a recommitment to our transportation infrastructure. We need to learn from the rest of the world and make a real effort to build a rational working rail system for goods and people. We need to rebuild our crumbling infrastructure in the US. And that leads to the real challenge.

Seven, we need a real commitment from the American people for hard work to make thing work.

I just visited my daughter in Washington by rail. The train on the way back was late and I missed my connection. Two escalators were not working in various train stations and a sign on the DC metro warned that the elevator at the medical center was broke. Here in Massachusetts, we need to spend $19 billion just stay where we are regarding roads and bridges. That is not a good place to be. We are a country in need of a national commitment in order to fix our crumbling infrastructure. Too many people think that the American dream means cheap gas, lots of credit, and free utilities. We need a national commitment in order to rebuild our country into the economic power that we think it is. That means no more blue states and red states. It means we must be honest with the American people about what we need to do. It means no more misdirection as to the real problems. It means we all roll up our sleeves and realize that the only way to get back to a thriving economy is with hard work.