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For a Healthy Economy, Focus on Fundamentals
Richard Doak

Des Moines Register

February 5, 2006

[Note: This material is copyright by the Des Moines Register, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Des Moines Register.]
Doak: For a healthy economy, focus on fundamentals

It used to be: It's the economy, stupid.

It ought to be: It's the fundamentals, silly.

Certain fundamentals must be in place before a decent economy is even possible. A lot of the worry about America losing its edge in global competition comes down to the fact that this country has neglected the fundamentals, or at least taken them for granted too long.

Perhaps President Bush's competitiveness initiative, keyed to basic research and better science and math education, can help turn that around.

The importance of fundamentals came to mind last week with all the hosannas heaped on retiring Federal Reserve chairman Alan Greenspan, as if he were the savior of the economy. He isn't.

He had a steady hand on the helm at the Fed, but the interest-rate-setting tools available to the Fed are limited. They can be used to fine-tune an economy, but they can't fix the economy's core. You can't fine-tune a set that isn't plugged in.

To test that thesis, imagine Greenspan trying to create an economic miracle in, say, Zimbabwe, by using his central banking powers alone. It's a ridiculous notion, because that poor, misgoverned country lacks the fundamentals.

The fundamentals are things such as an educated and skilled workforce, a healthy population, the free flow of goods, ideas and information, good transportation and other basic infrastructure. Abundant natural resources are a plus, although some countries, like Japan, manage without them by developing their human resources.

The final fundamental, which ties them all together, is a competent government. Government can provide stability and security, so people have confidence to acquire an education, to save and invest for the long term. Elements of that include protecting property rights, enforcing the sanctity of contracts, patents and copyrights, regulating the financial markets and banking institutions for honesty, defending the country, policing the streets, guarding public health and all of the other nitty-gritty and often unnoticed things that competent governments do.

Then there are the schools and universities, the roads and airports and harbors, and all of the other critical infrastructure that make a modern economy possible. It is fashionable these days to bash government as evil or useless, but without all that nasty government "interference," we'd have worse than a Third World economy.

There's reason to believe that the country has been failing to take adequate care of the basics. The United States hasn't launched a major new infrastructure undertaking since the Interstate Highway system in the 1950s. The shelves are full of engineering reports on the nation's failure to properly maintain and replace aging infrastructure. We lag behind several other countries in the deployment of broadband Internet and high-speed rail. In international comparisons, American education looks increasingly less like the world pace-setter it should be.

In Iowa, much the same might be true. We've pinched school budgets and allowed teacher compensation to slip relative to the rest of the country and failed to modernize the education-delivery structure. We have massively shifted the cost of higher education from taxpayers to individual families. We lag in spending on environmental and recreational amenities that go hand-in-hand with growth of high-tech industries.

It's a positive sign, though, that the Iowa Business Council recently affirmed that its legislative priorities include universal preschool in Iowa. This group of top corporate CEOs in Iowa gets it: The way to improve the economy is to expand education to invest in the fundamentals.

The same recognition drove the competitiveness initiative announced by President Bush. It responds to alarms raised by several industry and academic groups about the possibility of the United States losing leadership in technology to China and India. The initiative calls for the government to spend more on basic scientific research and to foster the education of more American mathematicians, scientists and engineers.

Iowa should follow suit with its own science and engineering initiative. Then make sure we're not neglecting other fundamentals, either.