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YOU DECIDE: Can new leaders lead to a new economy?

November 14, 2008

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

Dr. Mike Walden
Media representatives:For a black-and-white or color copy of this photo, call 919.513.3127 or e-mail dave_caldwell@ncsu.edu.

The election is over, and now our newly elected (and re-elected) leaders face the task of governing. Clearly, economic issues were front and center during the political campaign, so it's understandable that voters will be expecting action on pocketbook issues.

But what actions can our new leaders take? Are there any quick silver bullets to make things better, or do economic questions have, at best, only long-run answers?

Here's an evaluation of what faces our leaders both in Washington and Raleigh.

The recession: The recession is the most pressing economic problem facing the nation and North Carolina. Hastening the end of the recession is really something only Washington can attempt because recessions, by definition, are nationwide, and this one is really worldwide. The federal government has already done much. Congress passed one stimulus package and another is likely on the way. The Federal Reserve has also lowered interest rates, bought bad debt and is now printing more money. However, the impacts of these actions take time, and they also pose risks. More federal spending requires more borrowing, which must be repaid from future income. And printing more money could spark higher inflation in a year or two. Most economists think that, regardless of what else is done, the recession will likely last until at least mid-2009.

Education: This is the key to our economic future. In today's technological, globalized economy, countries, states and regions with well-trained, productive workforces will be competitive and prosperous. Although federal involvement has increased in recent years, state and local governments have long been the primary movers in education, and this will likely continue in the future.

The issues are different for K-12 and higher education. For K-12, the big question is, "What works?" What will it take to improve educational outcomes for more students: better teacher pay, better teacher training, linking student performance to teacher pay, more technology, smaller class sizes, more specific education, more general education, more parental involvement or all of the above? Unfortunately, the answer isn't obvious, which makes the job all the harder when financial resources are limited, as they always are.

For higher education, the question isn't what works, but instead, "Who pays?" The U.S. - especially North Carolina - has the best universities and colleges in the world. North Carolina also supports a higher percentage of the costs of public universities and colleges than most other states. But as more college-age individuals attend universities and colleges in the future, how will their expenses be financed? What is the fair or correct share to be paid by the student and by the public?

Energy: People want alternatives to fossil-based fuels both for environmental and national security reasons, but getting there is complicated, and there are many, many questions. What alternatives are technically feasible, and who should be the leader in finding them: the government or the private sector? And if the alternatives aren't yet economically feasible - that is, their costs exceed their revenues - what's the best way to make them profitable? Should the alternatives be subsidized, or should fossil-based fuels be taxed? Can states like North Carolina carve out a profitable, self-sustaining future in alternative energy production, or are the risks and uncertainties at this time too great?

Health Care: This is possibly the thorniest longstanding economic issue of our day. There are two parts to the health care problem: coverage and cost. What can we do to make sure everyone is covered by health insurance, and what can we do to arrest the steep climb in health care costs? Of course, the federal government has been involved for decades in health care, but now many states are also addressing the questions.

Possible answers are all over the board. Some prefer the federal government simply take over (nationalize) the entire health care system and finance it from general tax revenues. Others prefer a less expansive approach, with maybe the federal government requiring employers to provide health insurance, but with government coverage as a backup. Still others want to go in the opposite direction: less government involvement by reducing mandates and requirements with the goal of increasing the supply of basic, lower-priced health insurance.

Entitlements: Unfortunately, the two big "entitlement" programs, Social Security and Medicare, were little discussed during the political campaign. Yet they still loom as a growing and potentially crippling part of the federal budget. The sooner we address them, the better. Yet it won't be easy, because the programs assist perhaps our most cherished generation: senior citizens.

Wow! I'm tired just thinking of the challenges associated with these issues. Are there any easy answers? You decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

Posted by Dave at November 14, 2008 09:55 AM