Last week I wrote a suggested jobs speech for President Obama that would emphasize the reality that we will not see a return to full employment or strong economic growth for several years to come, and articulate the fact that our economy has some serious structural challenges facing it.
Despite challenges such as misaligned skills in the work force, a debt supercycle that still requires years of deleveraging with households contributing more towards savings and paying down debt than towards consumption and investment, and transformations in the structure of economic productivity, there are things we can do.
Here are seven areas to focus on change for long-term growth:
First, our education system is highly inefficient. Test scores remain at the same level today as in the 1970s, which means given the advancement in teaching methods and technology since then the actual education level is even lower. And the skills mismatch problem in our work force has lead to the highest number of Americans unemployed for six months or more in history. We can reduce the intensity of this skills mismatch in the future by committing ourselves to education reform that breaks from traditional modes of throwing money at the problem and instead seeks better measures of effectiveness and a willingness by local leaders and teachers unions to embrace the approaches which are best for the child—even if those are not the best for administrator pay and security.
There will always be some measure of skills mismatch as capital is readjusted to its best possible use in the economy. But we can work to ensure that U.S. public policy avoids distorting where that capital goes so that no sector of the economy is propped-up for longer than it should survive. An example of this in past is how, in the spirit of pursuing the American Dream, housing subsidies and other programs contributed to the skills mismatch problem by causing an oversupply of capital to flood the construction industry during the bubble period of the last decade.
Second, the American immigration system is an impediment to economic growth and employment expansion. I recommend that we eliminate all quotas for immigrants that plan to open a business and begin to issue “entrepreneurs’ visas” to highly skilled immigrants. Attracting and retaining top talent is essential for future job creation.
Third, we must overhaul the tax code. Whether it is by eliminating all deductions or simply replacing the income, corporate, and capital gains taxes with a consumption tax, Congress should make tax code reform a top priority.
Fourth, changes to the tax code should be coupled with reducing the long-term debt and deficit through responsible entitlement reform. We must commit ourselves to the necessary changes in Medicare and Social Security that will reduce future liabilities, eliminate waste, and ensure that the social safety net can be maintained for those to which it was promised.
Fifth, recovery in the housing industry, and the return of some related jobs in that sector, will involve getting the foreclosure process back up to speed so that we accelerate the deleveraging process of household debt. To this end I have directed federal regulators to quickly come to a settlement with banks over the mortgage servicing fraud dispute. I have also decided to end programs that aim to stop the decline of housing prices. As long as housing prices remain higher than buyers are willing to pay, then families that want to move to another part of the country for work will not be able to sell their home. This problem, called labor immobility, has added to the unemployment rate.
Furthermore, to ensure the proper allocation of capital to the housing industry, I will direct Secretaries Geithner and Donovan to initiate the necessary steps to dissolve Fannie Mae and Freddie Mac responsibly over the next five years so that the private sector can once again compete in mortgage finance.
Sixth, not only do we need to approve the pending free trade deals with Colombia, Panama, and South Korea, which will have many short-term benefits, we also need to initiate new free trade talks with Japan, India, Turkey, Indonesia, and Kenya, among others. New free trade agreements open up entrepreneurial potential and produce lower consumer prices. My administration also plans to make completion of the Trans-Pacific Strategic Partnership a priority, which would open free trade with nations from Malaysia to Vietnam to New Zealand.
Finally, we need to curb the regulation burden once and for all. Earlier this year, departments in my administration began reporting on ways they could reduce the regulations on their books. Next, I will be recommending that Congress pass legislation requiring a cost-effectiveness measure for major regulations. Furthermore, I recommend a 10 year automatic sunset clause on each new regulation unless the rule is reviewed and found to provide substantially better impact to business development than intended.
This new framework will require, for example, the Commodity Futures Trading Commission and Federal Reserve to better analyze the impact of their proposed rules under the Dodd-Frank Act. Additionally, over the long-term, we will need to repeal harmful elements of Dodd-Frank and address the gaps in legislation that still leave financial markets distorted by political intention in a way that keeps some institutions too big and too interconnected to fail.
Admittedly, many of the benefits from these reforms will be long-term in nature. So with that in mind I also propose seven initiatives that will benefit the economy the short-term without ignoring the long-term structural problems we still face:
See the whole Reason jobs speech here.