Wanted: Individual to fill vacancy as CFO of large corporation. Applicant must have significant work experience. They must be willing to blindly implement policies outlined by company chairman and CEO. Successful candidate must be well versed in economic theory and modern business practices. Acceptance of position will require individual to pass rigorous questioning by representatives of company’s stockholders.
You may see this ad in your local papers soon. Undoubtedly headhunters are already crisscrossing the nation, talking to potential applicants. And what is the job? It appears that the Administration wants to reorder its economic team, starting with the Treasury Secretary and eventually a new Federal Reserve chair. See story in the Washington Post.
I want to apply, for certainly my knowledge of economic theory is just weak enough to warrant consideration. It is hard not to be sarcastic here. However, who would want the job. Admittedly there is a great deal of power and prestige along with a relatively meager government paycheck. You will have the world looking to you for economic guidance, almost as if you were godlike.
Power alone is not enough of a motivation. The President hopes to accomplish many economic feats in his second term. The President envisions sweeping changes to the IRS and American’s sacred retirement plan – Social Security. The chance to defeat every American’s worst government enemy and save its beloved retirement system is a challenge to appeal to only the best and brightest.
But with all jobs there is a downside. You don’t get to follow your own ideas and plans to accomplish these unbelievable goals. You have to do the impossible. You have to balance the federal budget while lowering taxes. You must do this with an economy that is just coming into a growth period. Congress ties your hands, as it is almost impossible to envision a cut in federal spending. The only way to accomplish the balancing act would be to raise revenue by growing the economy by a rate higher than the tax cuts and existing deficits. The plan is only a pipedream, once called “voodoo economics” by a politician trying to debunk the theory.
Privatizing social security is equally daunting. Established as a safety net the agency protects American’s without retirement savings. Currently millions of Americans rely of their monthly checks. Saving the system will take a great deal of work. Unfortunately if will likely cause a great deal of pain during the process. The Administration envisions allowing individuals to divest “their” retirement funds into private stocks and bonds. It sounds like a great idea. What happens to the investments currently held? What are those investments? Ironically enough, the Social Security Administration holds Treasury bonds. The bonds finance our burgeoning budget deficit. Allowing divestiture from these bonds would force the Treasury to raise interest rates to attract other investors. It would be folly to believe the free market would replace government investors unless the rates matched rates found on the open market.
This is a catch-22. The government needs the money to finance its debts. It cannot raise the rates paid on these bonds without drastically increasing the national debt. The more capital the federal government must borrow the higher interest rates will climb as the money supply contracts.
The task facing the next Treasury Secretary will be great, but the one they must accomplish is standing up to the President and his advisors. The new secretary must follow sound economic principals in order to keep the American economy stable and protect those who have retired.
