State of the Economy!

It is hard to fault the presidential contenders for being so vague about what they would do to address the pitiful state of our economy. Admittedly, it is easy to criticize statements that appear ridiculous, e.g., McCain's claim that he will balance the budget by the end of his first term while keeping Bush tax cuts and not raising other taxes. However, what to do is a problem.

If there was one problem that touches on many aspects of the economy, it is the lack of appropriate regulations.

I am a supporter of those, e.g., Robert Kuttner, who advocate more regulations. While I have no problem with capitalism, per se, I do not think that the market forces adequately address all aspects of the economy. Without focusing only on the recent debacle with Freddie Mac and Fannie Mae which were systems that followed the rules of capitalism by rewarding profits but went another route so that losses could be socialized, I think that the general problems associated with the mortgage industry illustrate that financial instruments can be invented by Wall Street gurus that minimize the consequences of failures.

In addition, I believe that public utilities (energy and transportation) and health care cannot be managed only by market forces. However we emerge from our dependency on oil, it will take a partnership between private capital and government to ensure that investors can count on a return on their investments even if these profits are regulated. In turn, the government would also invest to entice private investors to expend their funds knowing that they will not suffer total failure. Transitioning to a new way of providing energy is unreasonably risky for private investors, especially when we do not have time to waste!

I also believe that the problems impacting air travel point out the failures of a market economy to address an industry impacted by extraordinary factors, e.g., price of oil. Not only are we now experiencing chaos, but the availability of flights is depressed. If air travel was regulated, prices could be adjusted to reflect these realities so that the public could continue to meet their needs. Health care is surely an example where the market cannot address the forces that increase costs without commensurate health gains.