Reason Foundation

http://www.reason.org
http://www.reason.org/news/show/the-five-core-principles-presi

Reason Foundation

The Five Core Principles President Obama Should Follow

Calls for massive stimulus package will make Obama's first 100 days even more critical

Samuel Staley
January 20, 2009

There is no shortage of issues that President Barack Obama could take on as his top priority.

He could launch a public-private partnership infrastructure program that rebuilds the country's roads, highways, and airports, creating a 21st Century transportation system that paves the way for the economy to rapidly grow. Nearly every city, business and worker in America would thank him for ending congestion and improving mobility.

Or President Obama could reform the dismal public education system by encouraging charter schools, as he has in the past, and implementing school choice. Parents could choose the schools that are best for their kids. Backpack funding that follows kids to the schools of their choice would force public schools to improve because they'd have to compete for and attract students if they wanted funding. Instead of unresponsive schools that waste money and don't get better, you'd have public schools focused on results and delivering value to their customers (parents and kids).

Or President Obama could end the failed war on drugs. During the campaign he wisely and compassionately talked of ending the cruel Drug Enforcement Administration raids on cancer and AIDS patients at medical marijuana dispensaries in states where voters have approved the use of medical cannabis. The government has spent hundreds of billions on the war on drugs and that money could should be saved or, if it must be spent, be put to better use.

The list of options goes on and on. But amidst this recession, it is clear that President Obama's top priority will be his efforts to jumpstart the economy.

The first 100 days of any new president's administration are the most closely watched, and this will be even more true for President Obama. Running a superb campaign based on change and inclusiveness, Mr. Obama seemed to create super human expectations for his presidency during the general election campaign. Now, he's inheriting an economic recession more than a year old that shows no signs of stopping anytime soon. But the general public will expect results, and his critics will be waiting to pounce on any apparent weakness or failures.

Economic policy will clearly be the centerpiece of the opening days in his administration as unemployment nudges ever closer to the levels experienced during the last deep recession in the early 1980s. Policymakers see few practical alternatives to embracing the $850 billion or more stimulus package currently being crafted in Congress.

Nevertheless, it will take more than money. President Obama and Congress could inflict serious damage on the economy if smart, prudent choices aren't made. If an $850 billion stimulus package is spent the way the $700 billion bailout has been spent thus far, you'll have a lot of angry taxpayers - and maybe a country still mired in a recession.

The policies adopted in the first 100 days of the Obama administration will endure far beyond this recession and well into his expected run for a second term four years from now. So here are five important principles for President Obama and his advisors to consider as they embark on their historic moment in history.

1. Do no harm.

Despite the economic turmoil in national housing and financial markets, the Obama administration should not ignore the potential to seriously undermine long-term economic growth through politically expedient programs focused on short-term job growth. Japan tried the path that many are urging President Obama to follow. In the Washington Post, Amity Shlaes wrote, "Between 1992 and 2000, the Japanese launched 10 stimulus packages that included public works...In Japan, the '90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate -- an unthinkable occurrence just a few years earlier. Even today, Japan is having trouble climbing out of its cement pit."

Filling potholes, repairing sidewalks, building duck ponds, and laying concrete for roads and bridges to nowhere will do little to enhance the nation's long-term competitiveness even though these projects may be "shovel ready." The jobs will end when the project does, and any positive ripple effect through the economy will be small. At the same time, the rush to push a stimulus bill with a heavy infrastructure spending component has the potential to fundamentally derail important discussions about prioritizing investment in the nation's infrastructure. Most infrastructure projects are large and expensive. They need to be done wisely, with strict oversight. Congress has failed miserably when it comes to overseeing the bailout funds. Infrastructure stimulus is ripe for fraud and abuse. Sticking taxpayers with thousands of bridges to nowhere won't help the economy.

Infrastructure and transportation policy should be about improving mobility to gain improved access to markets and services for U.S. citizens and businesses, not short-term job creation. Reducing traffic congestion on our roads and bridges is vital, but it isn't a jobs program. Choosing wasteful projects to 'get the economy moving' may well torpedo chances for serious reform to the national transportation network at a crucial time. The country needs to improve its freight corridors, reduce urban congestion, enhance the safety of our roads and trains, and modernize our aviation system. This takes serious study and investment, not rushed stimulus.

2. There's no free lunch.

Goosing spending today carries long-term obligations.

After the stimulus is over, what will the Obama administration do about the debt and deficit? One approach is to raise taxes once the economy is growing again, but this approach will likely put a significant drag on the economy and hopefully President Obama recognizes this.

Federal, state, and local taxes already consume more than 30 percent of our economy according to the Tax Foundation. A national (federal, state, and local) tax burden greater than 23 percent eats into national growth. Simply borrowing money to fund the stimulus is "robbing Peter to pay Paul," where Paul is really your son, daughter, or grandchild.

The only other option is to reduce spending on other programs. President Obama appears to recognize this tradeoff, vowing recently to address Medicare and Social Security reform quickly. Medicare, the nation's health care entitlement program for the elderly and disabled, is expected to go belly up by 2019 and Social Security will exhaust its reserves by 2041 without serious reform. The key will be to bring spending for these major programs in line with inflation and to reduce spending overall as the economy heats up. Setting a long-term goal of bringing the federal government tax burden down to less than 15 percent of the nation's economy will ensure steady long-term growth.

3. Use tools that work.

It sounds so obvious, but a pragmatic approach to policy should be a high priority. The Obama administration has seemed genuinely interested in building coalitions during this transition process, saying it will take ideas from both sides of the aisle.

Congress appears committed to a major short-term spending program to stimulate the economy, but other tools may, in fact, be more effective at achieving these and other goals. Tax cuts could be more effective than stimulus. It's easier for the Treasury Department to cut checks to the average American household than it is to evaluate, prioritize, and approve spending programs for state, local, and federal government agencies.

4. Cut off ineffective programs.

The Obama administration is entering a "perfect storm" of sorts in federal policymaking: there are huge expectations for new federal spending, but few resources to fund them. These challenges offer a unique opportunity to sweep ineffective programs off the federal budget rolls. President Obama recognized this on the campaign trail when he vowed to eliminate redundant programs and bring transparency to the evaluation of federal programs. Whether the program is an abstinence-only sex education program or one of the 6,371 Congressionally designated "earmarks" in the last transportation bill, the Obama administration will have no shortage of targets. The debate over the stimulus bill, and how to pay for it, gives the administration an unprecedented opportunity to cut out the fat from federal spending. Taxpayers will understand that underperforming or wasteful programs have to go during this economic climate. Mr. Obama should take advantage of the opportunity.

5. Freedom counts.

At the end of the day, the Obama administration should recognize that entrepreneurship, innovation, and experimentation have been the hallmarks of America's job creation and prosperity, not increased regulation that push managers and businesses into one-size-fits all rules. This may, in the end, be the biggest tightrope the Obama administration has to walk. During the campaign, President Obama was optimistic and extolled the benefits of America's entrepreneurial spirit, talent and initiative. On the other hand, he chastised American business leadership for being short-sighted and making poor decisions.

As President Obama and his advisors build their reform agenda, they will have to avoid killing the goose that laid the golden egg. If the financial services industry regresses to the point that American business relies only on the stodgy ways of risk-averse banks of the 1960s and 1970s, the credit and financial liquidity necessary to fund the next Google, Apple, Sun Systems, or electric car manufacturer Tesla Motors may not exist. New rules and regulations aimed at investors and companies often backfire, stifling innovation and many of the nation's brightest entrepreneurs. In this global economy, we can't afford to handcuff America's competitiveness.

President Obama and his team have their work cut out for them. They realize that the first 100 days is the "honeymoon" period where meaningful work on the "nation's business" gets done. They will have to avoid the temptation to do something, anything now in response to the economic recession (which is temporary) and keep their programs and reforms focused on the long-term health of the U.S. economy. Focusing on these five core principles will be the most effective way to manage that agenda and ensure that it is successful.

Sam Staley, Ph.D., is director of urban growth and land use planning at Reason Foundation. He is co-author of Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). An archive of his work is here.



Samuel Staley is Research Fellow


Print This