Capitalist Command Economy

It is no secret that the American economy is stagnating, and unfortunately this slow down may be a harbinger of things to come. Jobs are going overseas due to our comparative disadvantage, manufacturing growth is almost non-existent, people are losing their jobs, and yet nothing seems to be changing. No matter what one's political views are, everyone agrees that the countries economy is seriously off course. The liberals will immediately scapegoat conservative policies and try to push their demand-side socialist policies which are only superficial solutions to our current economic crisis. In all fairness, conservatives are also dumbfounded, because for once, the free market can not pull us out of this mess.

It's true that such rough patches have happened before like the Great Depression and the stagflation which characterized the 1970's, but I believe that this recent stagnation is the result of a fundamental economic correction in the world economy. Many countries are rising out of the shadow of imperialism, communism, and political instability. These countries are all growing at astronomical rates, and will pose a serious threat to American supremacy. The worst part of this crisis is that it is difficult to determine how all of it will play out. Will this just be a unnecessary worry? Will oil prices kill the emerging economies on the fringe? Will a major war change the spheres of world political influence? Market economies do not react well to such uncertainty, since they only live in the present. Supply and Demand are determined by prediction regarding the next 1-2 years- not 15-25 years.

I, a life long Republican and a staunch supply-side market economics advocate, struggle to find a solution to our current problem. After looking through some historical references and reading some books, I realize that some degree of industrial planning maybe necessary in our economy. I want to make it clear that I advocate long term plans(5 years or more) and strategic plans(direction and policy). This is different than a true command economy, in which tactical plans(production goals and expansion) are also handled by the economy. I would leave tactical decisions to the free market, and use non-binding supply-side incentives to influence strategic decisions. For example, if our planning organization foresees the need for widgets in 5 years, our government would provide tax incentives(not subsidies!!!!) for the production of widgets. This sort of planning is done by most countries in the world, but in the US we have decided to let free capitalism dictate industrial policy. It would just be comforting that competent people would be steering this nation's economy in the right direction.

Though this may sound good as an abstract policy, it will be extremely difficult to implement. Giving the government the power and the consent to actively control industry is never a good idea. That's why any planning commission must be a powerless group of advisers that advocate certain policy moves that the government should pursue. Ideally, these advisers would steer us clear of foreseeable train wrecks(like rising oil prices, and the credit crisis), but not interfere in short-term market fluctuations.

Here are the areas that I think could have used better(and still could use) planning:

• Lower Education- Chronic under-performance by students can't always be solved by one-size-fits-all social programs, but rather detailed analysis of the root causes of the under performance. Without a strong lower education system, our country will have a shortage of skilled workers, and chronic under-employment.
• Higher Education- Rectifying shortages of certain professions can be done by mandating public universities to increase seats for certain majors, and increase financial incentives.
• Manufacturing- Starting re-training employees and re-tooling plants before it is too late. Negotiating deals for American companies to purchase abandoned plants.
• Energy- determining the future of energy and where investment/attention is needed
• Transportation: building transportation in tandem with industry, and ensuring adequate connections.
• Free Trade- enabling national companies to expand easily

I want to know your thoughts on this post, and whether you think that industrial planning is a violation of free market economics.