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Obama’s Jobs Speech: What James Galbraith Would Include

President Obama addresses a joint session of Congress tonight at 7:00 pm ET to discuss the need for measures to improve the economy and create jobs. The White House has been releasing preliminary summaries — see David Dayen’s post — while the GOP has spent recent days dismissing the speech in advance and insulting the President. We’ll see if the speech has more to add and provides a convincing narrative.

I had the opportunity to hear University of Texas Professor James Galbraith address members of the Harvard Progressive Caucus this afternoon. During an extensive Q & A, Galbraith discussed the nation’s current economic plight, the origins of the financial crisis and prognosis for recovery.

After he mentioned President’s speech tonight, I asked Galbraith what he would include in the speech if, by some miracle, he was asked to draft it. And knowing the White House advisers would revise Galbraith’s draft, what would he tell the President in a private memo was essential?

As Galbraith fans and readers here know from his 2009 article, No Return to Normal and other writings, Galbraith is not optimistic about our ability to recover quickly from such a devastating financial collapse. And the prospects are lessened by the initial failure to restructure the banking system, downsize it, remove senior executives and reimpose the tough regulatory oversight that grew out of the New Deal.

Galbraith explains the economy cannot function without a supportive financial system, but the financial sector that evolved over the last two decades or so no longer serves the economy in a responsible manner. Instead of supporting the “real” economy, it has effectively become the “real” economy, making up over 60 percent. Worse, massive bank fraud permeated the mortgage finance and securitization functions, and until that legacy is addressed and the sector more effectively regulated, it’s doubtful the banking system can support a full recovery.  [cont’d.]

Given that handicap and the mindless focus on deficit/debt reduction, are there helpful elements Obama and Congress should embrace? Galbraith listed several ideas worth pursuing:

First, “reduce the scale of the problem.” If we confront prolonged unemployment, then it makes sense to allow removing from the work force those who would be willing to retire early if the eligibility ages for Social Security and Medicare were lower. Early retirement opens up more jobs for younger workers, while moving people sooner onto Medicare allows the economy to provide health care at lower costs. Note that this is exactly the opposite of the proposals being leaked by the Administration and supposedly considered by the Super Committee.

Federalize Medicaid. States are struggling with increased Medicaid costs, because people who lose their jobs also lost health insurance. So we should move those costs to the Federal government, thus making the provision of health insurance an automatic stabilizer during economic downturns.

Continue/expand the payroll tax holiday. Ending it in January would have a negative impact on demand. It may not be the strongest job creator, but it does help increase aggregate demand.

Provide adequate funding for State budgets. They’ve taken huge hits in lost revenues and increased safety-net costs, due to the national depression. Only the federal government can make up that difference, and it should help avoid massive layoffs of public employees, teachers, firemen, policy, etc.

Fully fund an infrastructure bank. Galbraith emphasized the need to have the infrastructure bank focus on public investment, and not limit federal dollars to leverage private investments. Investments in public infrastructure, energy efficiency retrofits and climate change alternatives are other possible candidates. The concept is not just forn temporary support, but rather a permanent investment support as part of national investment policy.

Fix the financial sector. The economy can’t come back fully until the banking system functions to support the economy, instead of seeking to become the economy and extract an excessive share of its wealth.

Mitigate the mortgage/foreclosure crisis via a “right to rent” program. It would have minimal budget impact. Give current homeowners the right to remain in their homes if they pay fair rental value, with a right of first refusal to buy back after three years. “It gets all the incentives right.” It cuts payments, makes banks more responsible, limits the banks’ right to evict, and keeps people in their homes with an incentive to keep them up.

And most important, end the nonsense about budget deficits and debt. The deficit hysteria concern is unjustified, the faux economic analysis is wrong, and the remedies are only making matters worse. Even a long-run focus on reducing the debt is misguided.

We’ll see tonight how much of Galbraith’s remedies President Obama embraces.

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Obama’s Jobs Speech: What James Galbraith Would Include

Update: Video of Obama speech now available at WH website.

President Obama will address a joint session of Congress tonight at 7:00 p.m. Eastern to discuss the need for measures to improve the economy and create jobs.  The White House has been releasing preliminary summaries — see David Dayen’s post —  while the GOP has spent recent days dismissing the speech in advance and insulting the President.  We’ll see if the speech has more to add and provides a convincing narrative.

I had the opportunity to hear University of Texas Professor James Galbraith address members of the Harvard Progressive Caucus this afternoon.  During an extensive Q & A, Galbraith discussed the nation’s current economic plight, the origins of the financial crisis and prognosis for recovery.

After he mentioned the President’s speech tonight, I asked Galbraith what he would include in the speech if, by some miracle, he was asked to draft it.   And knowing the White House advisers would revise Galbraith’s draft, what would he tell the President in a private memo was essential?

As Galbraith fans and readers here know from his 2009 article, No Return to Normal and other writings,  Galbraith is not optimistic about our ability to recover quickly from such a devastating financial collapse.  And the prospects are lessened by the initial failure to restructure the banking system, downsize it, remove senior executives and reimpose the tough regulatory oversight that grew out of the New Deal.

Galbraith explains the economy cannot function without a supportive financial system, but the financial sector that evolved over the last two decades or so no longer serves the economy in a responsible manner.  Instead of supporting the “real” economy, it has effectively become the “real” economy, making up over 60 percent.   Worse, massive bank fraud permeated the mortgage finance and securitization functions, and until that legacy is addressed and the sector more effectively regulated, it’s doubtful the banking system can support a full recovery.

Given that handicap and the mindless focus on deficit/debt reduction, are there helpful elements Obama and Congress should embrace?  Galbraith listed several ideas worth pursuing:

First, “reduce the scale of the problem.” If we confront prolonged unemployment, then it makes sense to allow removing from the work force those who would be willing to retire early if the eligibility ages for Social Security and Medicare were lower.  Early retirement opens up more jobs for younger workers, while moving people sooner onto Medicare allows the economy to provide health care at lower costs.  Note that this is exactly the opposite of the proposals being leaked by the Administration and supposedly considered by the Super Committee.

Federalize Medicaid. States are struggling with increased Medicaid costs, because people who lose their jobs also lost health insurance.  So we should move those costs to the Federal government, thus making the provision of health insurance an automatic stabilizer during economic downturns.

Continue/expand the payroll tax holiday.  Ending it in January would have a negative impact on demand.  It may not be the strongest job creator, but it does help increase aggregate demand.

Provide adequate funding for State budgets. They’ve taken huge hits in lost revenues and increased safety-net costs, due to the national depression.  Only the federal government can make up that difference, and it should help avoid massive layoffs of public employees, teachers, firemen, policy, etc.

Fully fund an infrastructure bank. Galbraith emphasized the need to have the infrastructure bank focus on public investment, and not limit federal dollars to leverage private investments.  Investments in public infrastructure, energy efficiency retrofits and climate change alternatives are other possible candidates.  The concept is not just forn temporary support, but rather a permanent investment support as part of national investment policy.

Fix the financial sector.   The economy can’t come back fully until the banking system functions to support the economy, instead of seeking to become the economy and extract an excessive share of its wealth.

Mitigate the mortgage/foreclosure crisis via a “right to rent” program. It would have minimal budget impact.  Give current homeowners the right to remain in their homes if they pay fair rental value, with a right of first refusal to buy back after three years.  “It gets all the incentives right.”  It cuts payments, makes banks more responsible, limits the banks’ right to evict, and keeps people in their homes with an incentive to keep them up.

And most important, end the nonsense about budget deficits and debt.  The deficit hysteria concern is unjustified, the faux economic analysis is wrong, and the remedies are only making matters worse. Even a long-run focus on reducing the debt is misguided.

We’ll see tonight how much of Galbraith’s remedies President Obama embraces.

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John has been writing for Firedoglake since 2006 or so, on whatever interests him. He has a law degree, worked as legal counsel and energy policy adviser for a state energy agency for 20 years and then as a consultant on electricity systems and markets. He's now retired, living in Massachusetts.

You can follow John on twitter: @JohnChandley