This article is part of a group writing project at The Finance Blog Network aimed at providing some of our thoughts on key issues that the Obama administration faces. It was interesting to see all the different points of view, but one thing I think we can all agree on is that the time for words is over. It is all about action and execution now.
The number issue on the minds of most Americans is the failing economy and the direct impact it is having on our finances. It was mainly because of the economy and related issues that Barack Obama won the election and John McCain lost it. So the pressure on Obama to resolve the nations economic woes and deliver on his campaign promises are immense. Most would acknowledge we are in a recession now and the key will be to prevent the economy falling into a depression. I believe to get the nation moving in the right direction economically, we need to first solve the housing crisis and the impact it has had on the underlying mortgages that financed the extraordinary economic growth for most of this decade. No doubt the whole financial industry needs a systemic review and better oversight, but the only organization that is big enough to deal with the crisis is the US government. Rather than bailing out companies, they need to focus on helping homeowners by giving them the ability to service their mortgages or stay in their homes.
Ways to do this are already underway like the loan modification scheme, but more drastic actions like setting a federally backed mortgage rate of 4% to which people can refinance will allow consumers to get affordable mortgages and lenders to regain confidence that money that is loaned will be repaid. An expensive solution no doubt, but the times we are in now call for drastic action. As things improve the government should then start selling back equity stakes and mortgage portfolios to the private sector, hopefully for a nice profit which can be returned to tax payers in the form of lower taxes. I do feel Obama is on the ball when it comes to the economy and the underlying housing crisis, because as he has publicly stated “”We need a more institutional response to create a system that can manage some of the underlying problems with bad mortgages, help homeowners stay in their homes, protect the retirement and savings of working Americans,”
Longer term when the economy recovers and starts growing strongly again, sometime in Obama’s second term, he needs to focus on Americas future in a global context as the emergence of China and India will mean that the US is no longer the sole superpower or global financial centre. A great quote, and where the picture in this post was sourced from, is from the Economist that sums up Obama’s long term challenge
“At the end of the 19th century, Britain was the world’s superpower. By the end of the 20th it was America. The transition was preceded by two world wars. Some time in this century, the balance of power will change again. Mr Obama has inherited a world of pressing troubles. But as he tackles them he will have to keep an eye on the longer game: how to prepare for the day when America may no longer be sole superpower and only the first or maybe the second of many big powers. To manage that transition peacefully and still promote the spread of free markets and liberal democracy: that will be the mark of a truly great president for the 21st century.“
Despite oil prices falling sharply over the last few months, America must continue to rid itself of it’s dependence on foreign oil. Oil and gas prices will continue to fall as economic growth slows in the near term, but in the long term they will go back up past historic highs ($145 a barrel, $5 gas) as global demand returns and oil reserves continue to diminish. The first thing Obama must to is to get the smartest energy minds together and develop a sustainable domestic and global energy plan. He has started on this path with promises to spend $150 billion in reforming the nation’s energy systems and retooling the U.S. auto industry to build more fuel-efficient cars, but a far more comprehensive long term plan is needed. I don’t think America will entirely rid its dependence on oil in 10 years as Obama has promised, but I do think in 10 years we should be well underway in implementing a clear plan that provides the basis for shifting the nation away from “dirty” sources of energy to renewable and “clean” sources.
ama campaign policy was based around universal health care, which meant making health insurance affordable and accessible to all. The Obama plan also aims to lower health care costs by $2,500 for a typical family through investing in health information technology, prevention and care coordination.
Obama’s health plan to me will end up costing too much and it will be very hard to overcome the strong health industry lobbyists who are backed by well funded companies. To really address health care, Obama needs to look at the fundamental costs that make American health care so expensive when compared to the rest of the world. The Economix blog had a great graphic and discussion on this topic, with which I agree, that shows how high the cost of US health care per person is compared to other countries. To reduce the cost of health care and make it more affordable to all, a serious overall of our medical legal liability system needs to take place (tort reform). Routine cases are treated like extreme cases in order to ensure that doctors and hospitals are not subject to lawsuits. This type of “defensive medicine” — that is, the application of tests and procedures mainly as a defense against possible malpractice litigation, rather than as a clinical imperative increases the cost of treatment and administrative costs around managing health care. Obama needs to ensure the health system is designed for 99.9% of the population and not the 0.1% of exceptions.
Retirement/ Social Security
For past administrations fixing social security so that it can fund payments to those retiring after 2030 has been dumped in the “too hard to fix” basket. Well, we are rapidly approaching the point of no return where any meaningful long term fix to social security can be undertaken. I see two options to fix it. One, scrap the entire system and give back monies contributed to people as a payment to their 401K or IRA accounts (mandate that everyone has one). People must then be forced to put 10% of their earnings into their retirement accounts (they can choose how it is invested), which employers match. This will just replace social security taxes, so won’t be a new expense. For those who cannot work, the government can contribute a set amount based on projected living costs. With the right education and compulsory retirement saving laws, it will give people more control and surety over there retirement. The other option is to rework the entire social security system and set it up as a for profit fund, rather then rely on current workers funding retired workers. The fund will invest in US infrastructure like toll roads, airports and other utility type projects where a guaranteed rate of return is promised so that the fund stays positive and contributes to the nation’s prosperity now and in the long term.
This is the key to our nation’s future competitiveness in a global economy. America has the best (and most expensive) graduate and management schools, but unfortunately our primary, secondary and tertiary programs need fixing. Tertiary or college level education has become far too expensive for the average family which is already loaded with debt. The Obama-Biden plan is aiming to address this by creating a new American Opportunity Tax Credit worth $4,000 in exchange for community service. While this may cover the costs of community college’s it is nowhere near enough for attending top universities where the smartest and most talented people should go to. I believe that the government should make colleges with large endowments (often in the billions) lower tuition costs by taxing their endowments at much higher rates when they pass a threshold, and providing tax incentives to make scholarships more readily available. Our primary/secondary system needs reforming to ensure teachers are better paid and so provide a better level of education to our children. Incentives should be given to top performing teachers and schools. Further, the entire standardized testing system needs to be reviewed to align better with global norms. I am positive that Obama will take education reform serious given his strong academic background. This is also one area I think his wife, Michelle Obama, will play a very active role.
There you have it. Some of my views and potential actions that the new president could take to address some the most pressing issues facing the nation. Off course implementing solutions are much more complicated because of all the special interests and legislature, though I do feel President Obama (with a democratic congress) has a better shot than his predecessor at bringing some real change in addressing the above issues.