The world economy is entering a new phase after the failure of fiscal stimulus to create a sustained recovery in either the US or Europe. In the US, consumers have retrenched, housing starts have crashed and a double-dip recession is possible. In Europe, fiscal retrenchment is underway after intense market pressures. A new approach to recovery is needed.
Sachs is absolutely right. The most significant long-term problem our economy has is that it can't (and shouldn't) base its recovery on increasing consumer spending. The primary source of the catastrophe we've just been through is an overdependence on consumer spending to drive our economy, when that spending has been largely funded with debt. In short, and to use a somewhat archaic concept, we have a balance of payments problem that is at the heart of our financial woes.
Unemployment is a serious problem (particularly for those who are unemployed, but also for the economy at large), and extending unemployment benefits is a reasonable short term solution to it, but without investment to put those folks back to work, it's only a short term solution. Reinflating the housing bubble isn't a good answer, as we have more housing stock now than we can afford, and propping up other industries that no longer have international markets and exacerbate our dependence on fossil fuels doesn't help either.
We have serious structural problems with our infrastructure, and an inevitable transition from our dependence on fossil fuels to manage. Sachs' call for investment (both public and private) to address those problems (and along with them, our balance of payments) is the right approach.
There is, however, one aspect of that investment that Sachs misses, and in that miss, he shares a position with many who have been advocating as he has. That miss is that like many, he wants us to invest in high-speed rail.
High speed rail is all very well, and I'm for as much of it as the traffic will support, but before we make that sort of investment, we should simply repair the vast system of normal rail routes that have been languishing for decades. That fix is cheap, it's "shovel ready", and it would promote a far less consumptive mode of travel than any of those we are currently using. The argument is made that if rail travel isn't at high speed, it won't draw any business travelers, but if long distance rail were equipped with wi-fi stations, so that businesspeople could work on their way to their destinations, I don't think that's true.
Our air travel system is in desperate shape, and it's in that shape because even with the vast hidden subsidies it enjoys (airport construction costs are huge, growing, and almost completely supported by governments at various levels), it's losing a lot of its business to teleconferencing and more to the simple fact that traveling by air is getting progressively more inconvenient, as both fuel costs and security requirements increase. In relatively short order, the system will finally collapse, and when it does, we'll need a way to get goods and people around the country efficiently and comfortably on a large scale (the most interesting ads running on out television over the last year have been those noting that a rail line can move a ton of freight over 460 miles on a gallon of diesel fuel).
We used to have such a system, and its skeleton is still there, rusting in the sun and waiting for us to wake up and repair it. We should begin now.
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