An Economic Strategy for Obama

Barack Obama has been getting a mountain of unsolicated economic advice; here’s one selection. In case he needs more to read, we posted our long-term recommendations on the WSJ Real Time Economics blog today. In short, we see a long-term challenge – and opportunity – to shift resources from the financial sector and into what is colloquially called the “real economy.” This will require, among other things, investment in education, openness to immigration, consolidated financial regulation, and assistance for workers affected by restructuring.

9 thoughts on “An Economic Strategy for Obama

  1. Worth remembering that a very large part of the “real economy” is made up of the delivery of non-financial services; and that the USA has a considerable competitive advantge in those services which are internetionally traded.

  2. “The Fed has taken on obligations, explicit or implicit, amounting to over 70% of GDP.”


  3. 70% of GDP is about $10 trillion. $5 trillion of that is Fannie and Freddie. The insurance program for money market funds added a chunk as well.

  4. The difficulty in the current environment is in effecting that transition without devastating the non-financial sectors of the economy in the process. In the US, the financial sector allocates capital to all sectors of the economy. When the financial sector fails or seriously falters, it takes the rest of the economy down with it. Capital no longer flows to where it is needed and the economy seizes.

  5. A good measure in helping to resolve the housing crisis would be the imposition of a substantial tax on foreclosures, the tax to be paid to the local government by the party filing for the foreclosure. That would internalize the cost to local communities of the foreclosures, coerce mortgage owners into renegotiating troubled mortgages, and help break the fall in house prices. A couple of wrinkles to protect against possible abuses may be needed and presto you have a pretty sound policy.

  6. If the USA doesn’t return to the days of widely available consumer credit, then I don’t understand how consumer spending or the economy can recover to earlier levels. If high levels of consumer debt will not be supported by lending institutions then where will the money to bring the economy back from this slump come from?
    This isn’t a scientific sample on my part; but I live in a blue-collar working class neighborhood. And I don’t see how in the future my neighbors, who work for the post office, city government etc. can afford in the future the SUV’s they now drive or the vacations to Las Vegas or Disneyland they previously took.

  7. Consumers can increase spending for various reasons. One, which seems to have been common in recent years, is taking on more debt, which may or may not have been “balanced” by rising asset values. Another, more traditional way, is by earning more money. Real wages for middle-class Americans have not gone up at all this decade. If we can restore the economy to one where real wages are increasing again, this will provide more income for consumer spending. Offhand, I don’t know how the two effects compare in size – if someone does know, please speak up.

  8. One of the reasons why the meltdown in the housing sector has effected the rest of the economy is due mainly to CDS. My solution, get the congress to pass a law that basically eliminates all CDS except for those people/institutions who had direct stake on the assest covered by the CDS. I realize this is a drastic measure, but these are drastic times. What about those people who were paying for the CDS? Make the financial institution that were collecting the payments pay back the money to the clients. Simple. Confidence comes back into the system, liquidity is freed for borrowing among customers. Also, if those institutions who were collecting CDS payments do not have the money, use part of the $700 Billion bail out. Also, make everyone declare all there CDS after the speculative CDS have been eliminated. I’m not an economists, but I would value what others think. Thank you.

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