President-elect Obama,
Congratulations, I voted for you.
With hope I'm writing to you as a high school teacher and a parent; I pray you will receive and read this message.
I've been reading in newspapers and viewing on CSPAN much in regard to the current financial crisis and the efforts to evaluate the results of the $700 billion bail out. As I listen to testimony before subcommittees, congress and senate leaders and government representatives, I am struck by the lack of discussion or realization that so much of our current economic ignorance is linked to our selfish lack of a collective investment in human capital: Education.
Few people in Congress can actually read and understand the nature of the complicated loans and financial instruments that have resulted in this massive failure. We learn the hard way that ignorance is not bliss.
In order to have informed citizens, workers, and creative inventors in this country, we need the majority of our people to be educated or enlightened. But the support for public education continues to decline. When will we realize for the sake of our children and grandchildren that economic prosperity and a healthy culture as a whole is intrinsically linked to the masses of our citizens being well educated?
A thought: Could failing banks be encouraged to adopt a failing school in their community? Would employer bonuses be better received if they were tied to the success of a less fortunate organization, a public school, that is not considered these taxpayer bailout dollars?
Please keep education reform at the forefront of your thinking when trying to work through these complicated economic market evaluations. These two issues go hand in hand. Please, our children and grandchildren depend on us.
Most Sincere Regards,
Melissa Merwin
Elk River, Minnesota
"Above all things I hope the education of the common people will be attended to, convinced that on their good sense we may rely with the most security for the preservation of a due degree of liberty." --Thomas Jefferson to James Madison, 1787. Madison Version FE 4:480
"If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be." --Thomas Jefferson to Charles Yancey, 1816. ME 14:384
"Convinced that the people are the only safe depositories of their own liberty, and that they are not safe unless enlightened to a certain degree, I have looked on our present state of liberty as a short-lived possession unless the mass of the people could be informed to a certain degree." --Thomas Jefferson to Littleton Waller Tazewell, 1805.
Imagine if the majority of people could read, write, and think at this level like Jefferson, what kind of a world would we be living in today?
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Obamanomics
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Another example: Britain in the 1940s faced the daunting task of paying for a war against Germany. John Maynard Keynes was determined to have the Treasury finance as much of the expenditure as possible by levying taxes on wealthy households—both to fund the war and to redistribute income. To this end, Keynes strong-armed the Treasury to raise taxes on capital income to close to 100 percent during the war; high capital income tax rates persisted though the 1960s. The result was very low savings and investment, and very little economic growth. Economic growth and investment rose once these tax rates declined.
But there's another road we can take and it's lined with more opportunity than obstacles. History provides compelling examples of crises that led to policies that removed distortions, limited the role of special interests, and stimulated long-term expansion in the economy.
India, for example, was faced with a major crisis in 1990-1991. After four decades of pursuing a strategy of import substitution where the state played a central role in the economy, India found itself in the throes of a balance-of-payments crisis. In response they undertook radical reforms that removed controls on industrial investment and on imports, reduced import tariffs, and opened the country to foreign capital. The result has been nearly 20 years of astonishing growth that has lifted several hundred million people out of poverty.
In the early 1980s, Chile was faced with its own financial turmoil. Rather than continuing to subsidize politically connected borrowers and rely on significant state involvement in its banking system, Chile privatized state-owned banks and streamlined bankruptcy proceedings, which led to the exit of many inefficient producers. The result was a major increase in lending from private rather than state-owned banks, and an explosion in productivity as investment funds were allocated to the most productive enterprises. Chile is the only country in Latin America that has consistently grown faster than the United States over the last 25 years.
The lesson here: be careful what you wish for. There is a familiar urge to restrict those who got us into this mess, but regulation is a nasty business—nasty because the law of unintended consequences is always there to show us how we got it wrong.
The danger we face at this fork in the road is the conventional wisdom that associates more regulation with better regulation and more restrictive policies with less risk. History teaches us that the opposite is usually true and that the costs of getting it wrong can last for decades.
Thomas F. Cooley Is The Richard R. West Dean Of New York University's Stern School Of Business. Lee Ohanian Is A Professor Of Economics At UCLA.
© 2008
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