Extraordinary admission. Better policy?

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Last night on Charlie Rose, Treasury Secretary Tim Geithner made an extraordinary admission. Here’s the exchange:

Rose: “Looking back, what are the mistakes, and what should you have done more of? Where were your instincts right but you didn’t go far enough?”

Geithner: “There were three broad types of errors in policy. One was that monetary policy here and around the world was too loose for too long.  And, that created just this huge boom in asset prices; money chasing risk; people trying to get a higher return; that was just overwhelmingly powerful.” 

Rose: “Money was too easy.”

Geithner: “Money was too easy, yeah . . . . Real interest rates were very low for a long period of time . . . .”

There you have it. Pretty simple. And yet it is the first time I can recall that any U.S. executive branch official, spanning the Bush and Obama Administrations, has admitted monetary policy was even one factor, let alone the central factor, leading to the crash. This is very big stuff. Read the rest of this entry »

Info-tech = recovery

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In testimony before Congress’s Joint Economic Committee today, Fed chairman Ben Bernanke noted that

In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak.

But it is these key business sectors that are most important for a U.S. — and global — economic recovery. As important as stabilization of the housing sector is, we are not going to be led out of the recession by another housing boom. Nor should we desire that. We need real productivity-enhancing innovation, which is largely enabled by non-real estate investment and entrepreneurship.

Among the myriad policy actions being taken in Washington this year is a potential overhaul of our communications strategy, under the aegis of the FCC’s new Broadband “Notice of Inquiry.” The first goal of this plan should be to to encourage the continued investment in leading-edge information technologies. Broadband communications especially makes all our businesses in every sector more productive and also connects an ever larger number of citizens, especially those who may be struggling the most in this tough economy, to the wider world, improving their prospects for education, health, and new jobs in emerging industries.

Information and communications technology (ICT) accounts for an astounding 43% of non-structure U.S. capital investment, totaling $455 billion 2008. In this new FCC communications policy review, we should do everything possible to keep this huge source of American growth rolling. Any policy obstacles thrown into the path of our information industries would not only reduce this crucial component of absolute capital investment, which is already under strain, but also diminish and delay all the positive cascading follow-on effects of a more networked workforce and world.

Jack Kemp, 1935-2009

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I have a photo of my father from around 1982, standing on the tarmac of South Bend airport with Jack Kemp. The economy was in the tank, and America’s world standing was uncertain. My Dad had gone to pick up Kemp, who was to speak at an event for his fellow Republican, Jack Hiler, who was our friend and congressman from northern Indiana. I was maybe eight years old at the time. We were Reagan-Kemp-Hiler conservatives, interested in entrepreneurship, economic growth, and a muscular but prudent international stance.

Some 15 years later I would go to work for Kemp as an economic analyst. It was not preordained, but neither was it a complete coincidence, I suppose, that I spent several years working for the man who, more than any other public official, had articulated and even helped shape my, and my family’s, worldview. Kemp and I even shared the same birthday, July 13.

It is difficult to overestimate Kemp’s impact on history. For those who don’t grasp the importance of economics in politics and geostrategy, that will seem a wild overstatement. But I do think Kemp changed the arc of human events by helping to launch the U.S. on a much higher growth trajectory. Read the rest of this post »