Preparing for the next recession

September 16th, 2010

So I saw President Barack Obama give a speech last week. Just another day in the life of a world news editor of an award-winning weekly college newspaper.

Obama chose to give his speech in Parma. If you’re from Cleveland, you’ve definitely heard of Parma. It’s the butt of every other joke around here. Even C-town legend Drew Carey once said that Parma is what Clevelanders make fun of while the rest of the country makes fun of Cleveland, or something along those lines. 

But Parma’s full of blue-collar working-class Americans who are struggling to make ends meet, which makes it a perfect spot for Obama to unveil some heavy duty economic plans and drum up some support for his fellow Democrats ahead of what’s probably going to be a pretty rough election season. 

Obama’s speech made it clear that he’s got his eyes set on both the short-term goal of tackling unemployment and the long-term goal of reducing the debt and the deficit. He talked about how he wants to make permanent the Bush tax cuts for most Americans while letting the tax cuts for the very rich expire. He also talked about his small-business bill that includes ideas that typically have strong Republican and business support, while also underlining his commitment to fiscal responsibility by proposing to freeze all discretionary spending unrelated to national security for the next three years. 

Now all of those ideas are fine and dandy, but here’s my concern: this nation will eventually find its way out of this economic mess. But if the past is any indicator of the future, I guarantee there’s going to be at least one recession – probably more – before I retire.

As president, Obama has the unique opportunity to decide how this nation will confront future recessions. We definitely don’t want to be caught with our pants around our ankles again like we were this time. So the way I see it, there are two approaches he can take. 

The first is prevention, which would likely involve a number of different laws and regulations designed at combating the factors that cause recessions. But I’m skeptical of this approach. There are simply too many potential causes of recessions that it’s all but impossible to try to prevent them all. In fact, lax financial regulation, special interests, big money lobbying and loopholes will probably keep us from even being able to prevent the same recession from happening twice. Therefore, instead of prevention, a better approach would be to accept the inevitability of recessions and focus on preparation by setting up programs and institutions that will better help us to “weather the storm.” 

One simple idea is to tie unemployment benefits to the unemployment rate so that if and when unemployment increases and jobs become harder to find, benefits for the unemployed are automatically extended. Another idea is to have a program that automatically provides federal financial assistance to state governments which, unlike the federal government, can’t deficit spend their way out of recessions and, therefore, have to make painful cuts in education, health care and other services. 

A third idea is to adopt a program the Germans like to call “Kurzarbeit,” or “short work.” This program offers government incentives to companies to reduce worker hours rather than lay off people during hard times and partially compensates workers for lost wages – and it has played a major role in Germany’s impressive economic rebound.

When dealing with an economic downturn, time is of the absolute essence. The sooner you respond, the more effective your measures will be, and the quicker you’ll recover. All of the above measures would give this country the tools it needs to quickly and effectively combat future recessions. They would also reduce the need for big, pork-filled stimulus packages that take forever to pass and even longer to implement. And with an American version of “Kurzarbeit,” we could start saving money now to prepare for the future – now that’s fiscal responsibility.

But will Obama listen to me? Negative. Will anyone listen to me? Probably not. But such is the life of a world news editor of an award-winning weekly college newspaper.

I should’ve just been a copy editor.