What Will Fix The U.S. Economy?

Federal Reserve chairman Ben Bernake claimed days ago that the US economic recovery is close to faltering. Unemployment remains low and stubbornly so. The European economy, once fractured but now linked by the Euro, is showing continued signs of Greek strain. Political warfare threatens to undermine any cooperative effort by the U.S. government to improve the economy. The Great Recession continues. Media coverage is exhaustive.

Lehigh University faculty were asked, “What can we do? What shouldn’t we do? Here’s what they said. 

Anne Anderson, Joseph R. Perella and Amy M. Perella Chair and Professor of Finance
Less politics, no short term solutions

The economy will not be improved with short term tax breaks. In all cases, I think the leaders of government need to work on plans that are less focused on will this get me re-elected and more on is this good for the nation. We need to give people an incentive to get back to work or a disincentive to stay unemployed; in some cases people make more on unemployment than they can earn working a minimum wage job.

As a country we need to ask ourselves why we have lost jobs to other countries: Quality issues, labor prices less competitive with other countries, etc. Unfortunately, the short answer is we need to do a complete assessment of how we got here, and then take the necessary steps, which may take time, to get the country back on track.

Loren Keim, Goodman Center for Real Estate Studies
We’ve taken the safety net too far

Businesses, like individuals, are afraid. Part of the challenge is that business doesn't know what the rules are going to be, and they're afraid (in a poor economy) to plan growth strategies and  hire workers when they really don't know what those workers will cost (in terms of healthcare costs, unemployment insurance costs, and even taxes).  Our government has been so focused on helping people, that we're hurting the enterprise system that created the success of the United States.   
For example, we have construction contractors that used to work for $25-$30 per hour.  When construction slowed, many of these workers went to unemployment.  While they CAN get jobs in similar fields currently for $15 an hour, they choose not to, because between the unemployment compensation, the reduced need for childcare and the tax benefits, it is better to stay home.  That drains our entire system, taking from production to take care of those that don't actually need it.
 
Honestly, we need to have a safety net, but we've taken it too far. We are paying for lifestyle choice rather than paying for those who truly need it and reinvesting the rest into growth.
 
Thomas Hyclak, Professor of Economics
Ideology should not trump good stewardship

We should have a 5-year plan that allows for an aggressive boost in government investment in highways, port security, the air traffic control network, etc. in 2012 and 2013, coupled with a credible plan to reverse the effects of these programs on the overall budget deficit in 2014, 2015 and 2016. Along with a longer term plan to deal with looming deficits in social security and Medicare/Medicaid, I would say no to tax cuts to help businesses build up cash piles or grants for long run R&D.

Cutting government spending because of an ideological commitment to smaller government without a consideration of the costs and benefits of the government programs is bad stewardship of taxpayer money and will slam the brakes on the current recovery. The problem is insufficient aggregate demand, not lazy workers collecting unemployment checks or job creators stymied in their investment and employment plans by uncertainty about government policy.

The sluggish response of the labor market to the recovery in GDP growth is something we saw in the two previous recoveries. Only now we're starting from a much more serious downturn and a higher unemployment rate. Since jobless recoveries occurred during the Clinton and Bush administrations it is silly (or cynical politics) to blame the current jobless recovery on anything peculiar to the Obama administration. What we need is even faster GDP growth.

When funds flow quickly to purchase U.S. government bonds every time there's a disturbing development anywhere in the world it is silly (or cynical politics) to keep talking about a debt crisis and an unsustainable deficit.” We're not Greece. People and Institutions are willing to lend the US money even at historically low interest rates. In the short run we should take advantage of the situation to make investments in stuff we need and that will help give a boost to aggregate demand and GDP growth.

George Nation, Professor of Finance and Law
Confidence is key

Our current financial problems are not caused by a lack of liquidity, they are the result of a lack of confidence in political leaders and financial professionals. In the U.S. we have bad faith partisan gridlock in Washington. In Wall Street we have deception, dishonesty and fraud. Washington needs the direct voice of the People to remind political agents that they work for the people, not their party or special interests.

The People will set a middle course that will produce balanced solutions. Wall Street needs sunlight. We must have transparency of interests in financial transactions.

Matthew Melone, Professor of Finance and Law
Leadership has failed to restores optimism in very pessimistic times

I think the most important goal for the economy, the nation, and for Americans is the restoration of a sense of optimism. I cannot recall a time where people have been so pessimistic about the future. Although we've had difficult times in the past, the present crisis is accompanied by an overwhelming sense of unfairness. Rightly or wrongly, people believe that they are paying a price for the recklessness of others and that those who were reckless reaped undeserved rewards.
Moreover, this period has been marked by an abject failure of leadership. The business elite appear to have focused on passing blame instead of getting out in front of the crisis.  I believe that the pessimism is fed by such a leadership void. To whom do you look to for leadership - politicians who appear to care about nothing else but re-election, financiers who eagerly cash in on good times but pass the buck in bad times?

The meltdown in 2008 came after a period when events would lead a reasonable person to question the direction of our economy and our country. The dot com craze, Enron, Fannie Mae accounting scandals, obscene executive compensation, the Catholic Church scandal, and Iraq are but a few events that have shaken any sense of optimism out of people. The financial meltdown was icing on the cake. We need to restore a belief that hard work will garner results and that the U.S. is, and will continue to be, a dynamic and vibrant society. I believe that once this occurs most, if not all, of our problems can be overcome.

Richard Aronson, Professor of Economics
Avoiding the Ripple of the EU

Greece has borrowed too much and has been too generous with their public pension plans, but it is reaching to compare Greek economic problems with those of the U.S.

Much of Greece’s national treasure and businesses are community owned, so the prescription of belt tightening and austerity is understandable. Creditors should and deserve to get their money back and their interest. But austerity also brings a reduction in business activity making it tougher to meet those established goals.

Our country has similar issues. But the United States is the most powerful and dynamic economy in the world and has managed it so. We are all in doubt now, surely, because we have a lot of debt and record deficits, but we are much better off than Greece. America’s poorest state, Mississippi, has long been the poorest state of the Union, but it survives.

I am confident that the European Union will do the right things. I believe the European Union was one of the great ideas of our time. But a union of that size needs a more involved central government than they have.