November 03, 2008
November 3, 2008, CEPR
November 8, 2008, Miami Herald
The next administration will have a long list of items that it should attend to quickly in order to prevent the current situation from deteriorating. These three areas should be at the top of the agenda:
Economic Stimulus – the collapse of the housing bubble is destroying $8 trillion in housing bubble wealth (an average of $110,000 per homeowner). Depending on where it ultimately settles, the decline in the stock market could lead to the loss of an additional $5 trillion. Standard estimates of the impact of wealth on consumption imply that annual consumption will fall by at least $470 billion a year.
In order to counteract this drop in demand, it will be necessary to have a substantial government stimulus in the neighborhood of $300-$400 billion a year. This stimulus should be directed towards households who will spend money quickly (e.g. unemployment insurance and food stamps), for infrastructure projects that are already planned, and for energy-conserving measures, such as building retrofits.
Health Care – there is an urgent need to modernize our health care system. Such modernization must accomplish two goals: achieve universal coverage and increase efficiency. The United States pays more than twice as much per person for health care as the average in other wealthy countries, yet we have worse health outcomes. This gap in costs is expected to grow substantially over the next three decades, causing enormous economic damage and creating huge gaps in the budget.
The next administration should open up a Medicare-type system to everyone. This step, along with a system of subsidies for low-wage earners, could be used to cover everyone and get health care costs on a sustainable track.
New Foreign Policy – rebuilding the role of the United States in the global community will necessitate concrete changes to our foreign policy in recognition of the damage wrought by the Iraq War, recent interventions in Latin American democracies, and the Bush administration’s general disregard for international law.
Bringing the troops home and ending the war in Iraq would be an essential start. The new administration must also work to re-establish ties with neighbors including Bolivia and Venezuela based on respect for their democratic sovereignty, and should generally re-engage with countries in Latin America on the basis of mutual respect and collaboration. Our economic foreign policy – including trade agreements as well as our influence over international financial institutions – should move away from the widely discredited “Washington Consensus” and instead reflect a strong commitment to poverty reduction and development, including the re-regulation of the financial sector.
The following experts are available for comment:
Dean Baker: Co-Director
Mark Weisbrot: Co- Director
Deborah James: Director of International Programs
John Schmitt: Senior Economist
Nicole Woo: Director of Domestic Policy
