Bridges to the Future

I wrote in January about a Bridges to the Future event hosted by the University of Denver called the Three Mayors. Last night, Robert B. Reich (the Secretary of Labor under Bill Clinton) and Alan K. Simpson (a former Senator from Wyoming) participated in an event entitled “Reflections on the National Economy”.

The tone of the event was light between these self proclaimed good friends who “disagree on just about everything.” However, there did seem to be a surprising amount of agreement on the issues at the core. I unfortunately cannot capture the humor of the dialogue, but I will do my best to summarize the key points that were raised.

Robert Reich began by stating that in his opinion, over the next 3 to 4 years, the major problem is not jobs but (1) the trade deficit, (2) the Federal budget deficit and (3) our own individual personal savings deficits. Apparently we as a nation borrow approximately 2 Billion dollars per day in foreign currency. The net effect of this is to decrease the value of the dollar. Jokes were made about Warren Buffet’s decision to invest in foreign currency but stressed that this could become a major liability for the US economy. Reich believes that Social Security is not in a crisis. “Medicare is the problem” due to the aging baby-boomer population. His major recommendation, that kept reappearing throughout the evening was to increase US worker productivity which he stressed was intimately linked to education. He fears that we are becoming a nation that is teaching our children to train to the tests when the new economy requires individuals with (1) problem solving ability (2) critical thinking (3) the ability to innovate and (4) creativity. He firmly believes that we must spend more money to recruit good teachers and to reduce class size. He also stressed that our investment to improve our “human capital” must begin early, with toddlers. Finally, he is concerned over the general loss of civility in our society which he feels is essential to allow us to engage in a dialogue over these critical issues.

Alan Simpson surprisingly did not disagree with many of the specific points raised by Robert Reich. Instead he tried to explain why it is so difficult for Congress to implement the necessary changes. Simpson was involved with the committees overseeing Social Security, the Nuclear Regulatory Committee, a committee on Immigration and one on Veterans. He said that he would come to these meetings armed with facts but learned that facts could not be used since these issues were driven by (1) fear, (2) emotion, (3) guilt & (4) racism. The facts simply are not strong enough to overpower these feelings.

Unlike Reich, Simpson does believe that Social Security needs to be fixed, even though both men agreed that it will not become a real problem until 2050 or so. He was quite frank about possible solutions, but stressed that many of these fixes would be political suicide. He offered three specific fixes: (1) raise taxes, (2) lower benefits, (3) remove the income lid on taxed income. He did agree with Reich that Medicare is a major problem. “Prescription drugs will break the country.” Medicare is expected to go broke by 2010. By 2010 more than 60% of the federal budget will support people over 60 years of age.  He also stated that Entitlements are “killing us.”

Simpson agreed with Reich that more money needs to be invested in Education. However, he believes this is a state problem. Apparently only about 6% of the federal budget goes to education and he does not see this improving. He described a Wyoming solution provided by the coal bed methane industry. This industry provided a 500 Million dollar endowment for state education. He suggests that other states can find ways to create similar programs without hoping for increased federal investment.

During a question and answer period, both men were able to clarify their views and address some new topics. One of these was tax reform. Both men agreed that the tax cuts were a bad idea and had the predictable effect of raising the federal deficit. Neither man seemed to think that a national sales tax, consumption tax or VAT would be viable. It’s not that they felt these taxes would be ineffective but more that they would be difficult to market. Lower income individuals spend a higher percentage of what they earn and thus would be hit by a higher percentage of tax per dollar earned.

Both men were concerned about the “housing bubble”. They are worried that we as individuals invest too much of our savings into our homes with the idea that sometime in the future people will be willing to pay much more for it than we did. While this may be true for now, neither expected this trend to be sustainable.

Another interesting point of agreement was on the “problem of outsourcing”. Both men stressed that we have been outsourcing for 100’s of years. This is a global economy; we must be able to compete in it. To quote Reich “the value of what we do is all that matters” which led back to the importance of raising our educational standards so that we can compete. Simpson claims to have always supported free trade and stressed serious concern over agricultural subsidies. Both men agreed that our people and products must be able to complete globally without subsidies.

All in all it was an interesting and fun evening.

Posted in Business School, Miscellaneous