Ingredients for round two of economic growth policies:

1) Increase the H-1B visa-limit ten to twenty fold. These are non-immigrant visas that allow employers to essentially cherry pick the best and brightest from across the world, especially in engineering. The limit is currently a ridiculously low 6,500 per year. These highly skilled positons are critical to developing private sector employment and growth.

2) Repurpose $5B from unspent TARP funds and start a revolving government venture fund to seed startup investments. The government could invest anywhere from $10K to $1M in promising businesses and take a flat 25% equity stake. 10 experienced fund managers could be recruited as SES (Senior Executive Service; the highest level of career government employees, who are eligible for bonuses for good performance) to serve on a board to approve applications and provide oversight. Future cash flow from those that succeed would pay down the deficit. The fact of the matter is we live in an information and service-based economy. Unemployment insurance, State aid and new highway spending help with cyclical unemployment, but structural employment is best created with new, sustainable, innovative companies.

3) Enact a larger follow-on investment in next generation transportation. The stimulus bill had a measly $10B for high speed rail. Follow-on with another $50B to buy a lot more cars, build more tracks, and connect major population centers. Through the multiplier effect and contracting a lot of this out, these funds' employment effects could be amplified and drive permanent private sector employment. The U.S. is falling behind in the efficiency with which it can move goods and people, prerequisites for sustainable growth in a global economy. (*Postscript: the White House just announced a $50B transportation package to stimulate the economy.)

4) Revamp, rebrand, and rerelease the Public-Private Investment Program rolled out last year. This program is designed to increase the market for banks' bad mortgage backed securities, as well as mortgage related loans. (More details here - http://www.financialstability.gov/roadtostability/
publicprivatefund.html). Unfortunately, a specific design has stalled and the program has been delayed. The terms and capital levels should be reevaluated in order to make them sweeter for private partners, and then fund managers hired to scale this up and start the auctions.

5) Tax credits/rebates based on purchases. The idea here is to combined tax cuts with smart purchases that will increase aggregate demand. I.e., invest in clean energy or buy an electric hybrid and get cash back, or hire people who are unemployed and get a payroll tax holiday. This would create a strong incentive for both immediate spending, and immediate hiring, while developing new markets. This would essentially build off the phenomenally succesful Cash for Clunkers model. That was one of the most impressive government-private policy team-ups in recent memory and I'm surprised how quickly it has faded from policymakers' collective memory.

6) Reform the Payroll/FICA Tax to increase aggregate demand. Lower income individuals have a higher marginal propensity to consume than the wealthy. Poorer people also pay a larger share of their income in payroll taxes than the rich. In fact, some 75% of Americans pay more in payroll taxes than in income. FICA should be exempted for the first $20,000 of income (thus increasing spending the most) and the current cap on FICA should be raised from $106K to more like $250K. Warren Buffet has had a wager going for years for any executive who can prove they pay more in payroll taxes than their secretary. So far, no takers.

Reverse Time Inconsistency

Recently approval ratings of Barack Obama (whether President or Candidate) have dipped into the negative terrain for the first time since polling has been conducted. Much has been made about this in policy circles and the media, and as usual I think there is way too much trying to be read into the tea leaves. Sometimes a storm comes through and the wind tussles the leaves. Then everything carries on as usual. The tree still stands, the storm comes and goes. As the President said, however less metaphorically, "I have my own pollsters. It's not like I don't have pollsters." In other words, he has been perfectly aware at every decision point, at every sensitive political juncture, of the polling costs and benefits. And the President's pollsters practice the calculus of surveying with a degree of art and complexity without compare. They could provide a range of estimates for what decision ABC will do for the voting proclivities of 80 year olds with a mild head cold this week who live in Duluth and prefer to watch Cold Case instead of Law and Order. The issue just may be that weekly, or quarterly, or even annual polling may not be the correct timeframe (or tool) to measure the President’s accomplishments, or weigh his likelihood for reelection in two years. This comes from the economic principle of time inconsistency.

Wikipedia (I have always wanted to start a sentence this way) defines time inconsistency as:

In economics, dynamic inconsistency, or time inconsistency, describes a situation where a decision-maker's preferences change over time in such a way that what is preferred at one point in time is inconsistent with what is preferred at another point in time...One common way in which selves may differ in their preferences is they may be modeled as all holding the view that now has especially high value compared to any future time. As a result the present self will care too much about herself and not enough about her future selves.

And this concept applies to essentially all of the President's accomplishments. Except in reverse. Rather than the President offering us tax cuts for a year that may benefit him in the short term, but create still more debt in the long term, he has done the complete reverse- sacrificed his short term political approval rating for long term policy investments that will likely yield approval rating dividends over the years to come. Rather than giving us candy now that will make us like him for the immediate future (but perhaps resent him later when we get a stomach ache) he has made us take our medicine. The benefits won't accrue for some time, but when they do, we will realize what foresight he had.

It will take years for financial regulatory reform to go through the rulemaking process. For specific capital reserves to be decided and set aside. For derivatives to see the light of day. Economic crises happen every 10 years or so historically, so preventing or mitigating future ones is on a time scale wholly irrelevant to the election cycle. Public exchanges from the recently enacted health reform law (of private plans mind you) will not even be launched until 2014. Then it will inevitably experience some growing pains. Millions of people may not see the benefit for several years. The deficit effects won't really come on strong until 2020. EPA's efforts to begin regulating greenhouse gas emissions in 2011 will likely take years to refine and get through legal challenges. Vehicle corporate average fuel economy improvements (which haven't been increased since Jimmy Carter) will require us to buy cars with a $1000 greater sticker price. But they'll save us $3,000in gas, and untold environmental costs, over the next 5 years. All of the costs (in money and time and anxiety and burden) occur now. The benefits are in the future, a future which people, even rationally acting ones, heavily discount. So it is no wonder the President's approval ratings are dropping. But rather than be a signal of distress, I think it might just be a measure of what real political fortitude looks like.

The public may doubt Barack Obama now. But if the President achieves no more major policy victories (say in Energy/Climate, Immigration or Social Security) I think he will still be one of the most popular former Presidents in American history. Yes, up there with the likes of his political hero Lincoln. I mean, we've already run this experiment. Social security and Medicare are two of the most beloved and untouchable programs in government. But in their day too they were subject to the short term vagaries and tremors of confidence that polls are so astute at capturing. If politicians had only listened to the polls in the 1960s we probably wouldn't even have them. Sometimes, leadership means making people do what is best for them, even if it hurts in the present.