By Chad M. Pillai.
Since the 2008 Financial Collapse, subsequent period of slow economic recovery, and political gridlock, a laundry list of policy proposals have been offered by both the Republicans and Democrats to jump start the economy. The ranges of proposals have re-ignited the intellectual debate between Keynesian and Hayek’s economic theories.
Democrats call for Keynesian-style government spending on roads and bridges to create demand while Republicans, following Hayek, argue for reduced government spending, reduced regulations, and cutting taxes to allow the free market to work. The fact of the matter is that both proposals fail to address the structural weakness in our economy created by over-consumption and less manufacturing production while only attempting evolutionary rather than revolutionary change in the economy.
So, how can the Administration and Congress put America back to work? Simply, by applying Keynesian and Hayek’s principles in a complementary manner and by taking a lesson from both Eisenhower and Kennedy – the Government challenges the free market to accomplish a difficult task that requires innovation.
What kind of challenge can the Government place that will make private enterprise compete and create the incentives for innovation, and by extension the possibility for spin offs for future growth? The Administration can commit the Nation to a Energy Security plan that both produces more domestic energy and increases energy efficiency that will address two critical factors: dependence on foreign energy sources and manufacturing competition from China.
The idea is simple and it rests with the purchasing power that exists in the largest federal entity – the Pentagon – and I don’t mean expensive weapons systems. The Pentagon in its “Energy for the Warfighter” strategy stresses energy security as a way to reduce its consumption both in the tactical environment and on installations.
The Pentagon is the nation’s single largest consumer of energy, and currently is planning to invest $7 billion in alternative energy, which provides the market weight to dramatically influence and challenge the free market. To alter the market and meet its goal, the Pentagon needs to be more aggressive by putting a price marker on its demand ($14-21 billion by reprioritizing within the DoD budget) and demanding the private sector meet that demand within two years with the intent of generating long term cost savings.
Just as President Eisenhower pushed Inter-State Highway System to create strategic mobility, and President Kennedy challenged the Nation to land a man on the moon and return him safely to earth, the President and Secretary of Defense can challenge the private sector to help the Pentagon reduce its energy consumption in the magnitude of 50%. The goal should be to make all tactical and non-tactical vehicles energy efficient and make all military installations energy neutral or net-energy producers.
There are four critical factors to consider making this goal a success and igniting the economy:
First, request the private sector to fill a large order (demand) such as installing solar panels on every military building and family home.
Second, put a specific timeline that makes it hard for the current private sector to meet with its current production capability of domestic manufacturing and installation of the required products in less than two years.
Third, incentivize future contract upgrades by requesting that the private sector meet a goal that exceeds their current technological capacity such as requesting all new non-tactical vehicles exceed current mileage capabilities by 20%, thereby enticing greater research and development.
And finally, offer bonuses for companies that meet demands to standard that are under-budget and faster than the contract specifies. This means that the government doesn’t need to offer tax credits or subsidies. It doesn’t distort the free market – it challenges it to perform. The Government doesn’t pick winners; the free market does by whichever private enterprise(s) meets the standard(s).
At the same time, private enterprises are able to utilize their innovations for commercial purposes and create economies of scale for production (lowering the cost of solar panels) that make their products attractive and affordable to American consumers.
The idea is simple; ignite the economy by having the free market compete to solve a complex challenge. It has to be a complex challenge because as JFK said, “We do these things and the other things, not because they are easy, but because they are hard!” This will allow the private sector to innovate and more importantly, create JOBS!
