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Friday, June 09, 2006

The YOYO Handcuffs - by Jared Bernstein

Here's a test: name one economic policy, other than tax cuts, associated with outgoing Treasury Secretary John Snow.
 
Give up?
 
Now think about this: what is the economic policy of the Bush administration? What about the Congress? What about the Democrats?
 
If all you could come up is that the first two aforementioned groups want to cut rich people's taxes, I'm with you. Beyond that, none of the above has offered a coherent strategy for meeting America's economic challenges.
 
And these problems are prodigious: global economic competition; 46 million people lacking health insurance; the seemingly inexorable climb of inequality; obscene CEO compensation packages totally unrelated to performance; an economy that's doing fine, until you consider the people in it.
 
Each of these problems needs concerted thought and action. But while the administration's new nominee for Treasury Secretary, Henry Paulson, is certainly an able economist, he will likely be as ineffectual as was Secretary Snow.
 
There's a reason why the nation's economic policymakers are suffering from a deficit of ideas: It's YOYO economics.
 
YOYO is an acronym for "You're on your own," and it is the guiding light of economic policy as practiced today. The idea is that no matter what the problem is, the solution is less government and more markets. You've seen many examples of YOYOism in action, but here's a primer:
 
Problem: The looming health care crisis.
 
YOYO solution: individualized Health Savings Accounts, designed to create better "health care shoppers."
 
Problem: The economic insecurity associated with globalization.
 
YOYO solution: more education. If you're not smart enough to compete with cheaper, skilled workers abroad, well, "you're on your own."
 
Problem: Solvency in your old age.
 
YOYO solution: Try your hand in the stock market with a private account.
 
And underlying all of this is the biggest YOYO tactic of all: cut taxes to the point where government is forced to contract so there's no question of an activist agenda. If you can enrich your donors along the way...well, then it's a "twofer."
 
The problem is, as is becoming undeniably clear, YOYOism doesn't work. It failed lethally in New Orleans. It's done nothing to stop the growth of the uninsured, the rise in poverty, the decline in median earnings (i.e., the real earnings of the typical worker, down 2% over the recovery, while productivity is up 15%), nor the rise in the profit share of national income, now at a 39-year high. The public rejected it with the failure of the Bush-push to privatize Social Security, and now the polls show deep dissatisfaction with the president's management of the economy.
 
There's a countervailing message rising out of the anxiety generated by the new economy:
 
"Policy makers, work with us. We're in this together. Rebuild a government that we can believe in, and we will do so. Conceive and articulate an agenda that harnesses the tremendous capacity, skill, and flexibility of our economy to meet the challenges. Instead of creating 300 million individual risk-bearing silos, let's pool risk though universal health insurance coverage and a strengthened pension system. Let's build an ambitious public/private partnership with the goal of energy independence to replace the jobs and wages lost to globalization."
 
You have to strain to hear this message, but it's there. It is, however, in desperate need of amplification. The new treasury secretary can't help--his hands are tied by YOYO ideology. So the question is: who will step up and amplify this liberating message?
 
Jared Bernstein is a senior economist and director of the Living Standards Program at the Economic Policy Institute in Washington, DC. He is the coauthor of the last seven editions of The State of Working America as well as The Benefits of Full Employment: When Markets Work for People. Web site: http://www.noyoyoeconomics.com
 
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