A Wish List for the New Congress

So now we begin another four years of a Republican Administration in Washington. And another two years of a Democrat-controlled Congress. Will life go on as usual? Or will the Democrats in Congress finally challenge the economic policies that, over the past eight years, have produced mountainous debt, financial fragility and economic polarization?

Two years ago, at the beginning of the 100th Congress, I outlined in this column a checklist of eight critical issues the Democrats needed to confront to make a difference on the economy. I promised to “keep my ratings as the 100th congressional season unfolds.”

On a scale from 1 to 10, I would charitably give the Democrats a score of 2. They dilly-dallied, hemmed and hawed, shuffled their feet and hid their heads. They failed to launch major new initiatives on any of the eight issues I listed.

Rather than reevaluate the last two years, however, I thou ght it might make more sense to update my list. Here are five issues, in alphabetical order, that are rarely discussed but on which we desperately need new initiatives. (This is only a partial agenda; some of the most neglected problems on a much longer list.)

1. The Fed. I’m beginning to sound like a broken record on this one: Real interest rates remain very high by historical standards while debt burdens grow heavier and heavier. But the Federal Reserve Board, catering primarily to the interests of the financial community, is repeatedly allowed to win at the game of chicken, consistently refusing to moderate interest rates until and only after something is done about the federal deficit.

Many liberal economists agree that we need a much better balanced mix between monetary policy and fiscal policy. But they continually refuse to raise questions about the political arrangements under which monetary policy is determined. Many European economies feature much closer coordination of fiscal and monetary policy than the United States. Here we deny ourselves the opportunity to achieve that kind of coordination.

Restraining interest rates requires challenging the political independence of the Fed. Congress has the constitutional right to mandate the specific content of monetary policy and to establish the conditions of the Fed’s relationship to the rest of the government. The issue for the new Congress is not whether to constrain the political independence of the Fed, but how.

2. Junk speculation. Speculative fever continues to grip the financial community. The mania for leveraged buyouts shows little sign of abating. Instead of investing to improve the nation’s productivity, junk hunters are investing to deepen our indebtedness.

Since the freedom to choose your investments is considered one of the most sacred rights in capitalist economies, it’s not easy to control these kinds of speculative epidemics. But there are some direct steps that Congress should pursue sooner than later: Lower real interest rates would help tip the scales away from speculative investments and back toward real productive investments.

We could impose a sharp tax on gains from short-term transactions on securities and other related paper investments--say on those paper assets held for less than six months or a year. And we could begin to limit tax deductibility on corporate interest payments incurred from leveraging equity purchases with ever-increasing debt.

It’s probably too late to undo much of the damage already done in the feverish ‘80s. But we should at least move quickly to prevent even more havoc with our corporate balance sheets and productive futures.

3. Labor law reform. Labor unions are in crisis. While there is much to criticize about the sluggishness of trade union leadership, a vital labor movement remains an urgent priority for working people in this country--and for nearly everyone else. Many studies continue to find, for example, that unions contribute to, rather than impede, rapid growth in productivity.

And yet, the obstacles to workers’ joining or forming labor unions are considerable. Surveys suggest that something like one-third of non-unionized workers, representing roughly 25 million to 30 million employees, would prefer to be represented by a union. The Labor Law Reform Act of 1978 proposed some sensible and reasonable reforms that would have at least partly reduced some of the barriers to unionization, but it was defeated as a result of vigorous opposition and lobbying by business groups, particularly by the Business Roundtable.

Something like the 1978 proposals should be back on the floor of the Congress. We need a vigorous labor movement, and that requires labor law reform.

4. The minimum wage. Politicians continue to succumb to the remarkable belief that low wages are good for the American economy. Quite to the contrary, we need desperately to promote more rapid wage growth. Families are being squeezed by declining real wages. And it is reasonable to argue, as I have suggested in earlier columns, that wage growth helps promote productivity growth by creating demand for products, stimulating more efficient use of available resources and providing workers with a real stake in the performance of the economy.

One of the most immediate and practicable public policy tools for having at least some influence on wages, especially at the lowest tiers, is the statutory level of the minimum wage. The minimum wage has not been touched since 1980, remaining firmly lodged at $3.35 an hour, with its real purchasing power declining by more than one-third over that period. It looked as if the Democrats might finally summon enough courage to mandate a significant increase in the minimum wage toward the end of the last congressional session, but they backed off just before taking the plunge. This should be one of the first priorities of the new legislative session.

5. “X” policy. Back in 1982-83, it appeared that the Democrats might be moving toward serious proposals for “industrial policy.” But the term itself was quickly tainted and industrial policy proponents faded into the woodwork.

We should forget about the labels. Let’s call it “X” policy. What we need, whatever we call it, is a concerted and coherent set of government policies to improve the performance of U.S. industry and to smooth the transition of workers and firms from one industry to another. Almost all of our major trading competitors, which have been collectively slashing our tires in international competition, engage in such policies. We must join them. And soon.

That’s my checklist for the new Senate and House. I’ll keep you posted. Based on our luck with the preceding Congress, I’m not going to hold my breath.