The First Draft: should Obama embrace new structural reforms?

November 11, 2009

Sen. Christopher Dodd of Connecticut and Columbia University economist Jeffrey Sachs are two guys who think President Barack Obama better embrace new structural reforms if he wants a growing economy that isn’t hard-wired to go bust.

Dodd, a Democrat fighting for his political life at home, proposed sweeping regulatory legislation this week that would curb the Federal Reserve’s bank oversight powers, strengthen consumer protection and keep a sharp eye out for systemic problems like housing or stock market bubbles.

The 1,136-page measure reflects Obama’s policies in some ways — for example, it supports the White House call for a Consumer Financial Protection Agency — but it also charts new regulatory waters.

“What we have (now) is a hodgepodge that has grown over the last 80 years, some of it dating to the 19th century and early 20th century regulatory structures,” Dodd told MSNBC.

“These agencies basically have provided a forum for financial institutions that look for a weak charter, in a sense. They shop around and get it. So we need to eliminate or change that fundamentally.”

“I think you’re really on the right track,” Sachs told Dodd in the same broadcast.

But Sachs, who became famous for his economic work in the developing world, thinks Obama should adopt much broader structural change and says current White House policy is akin to using a morning-after drink as a hangover remedy.

“The Obama administration’s stimulus policies are not well targeted. The Republican alternatives are even worse. Both sides are missing the key fact: the U.S. economy needs structural change,” Sachs writes in an op-ed column in today’s Financial Times.

Sachs, who now focuses on sustainable development as director of Columbia’s Earth Institute, says the president is bent on restoring American consumer spending.

Instead, he says, the United States needs dollar depreciation, greater support for exports, a massive expansion in education spending and a robust conversion to a low-carbon economy.

“Move now, Mr. President,” Sachs says in the FT, “or we will spend our time digging out of the next consumer bust and buying our technology from China.”

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Photo Credits: Reuters/Jim Young (Dodd); Reuters/Reuters Photographer (Sachs)

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