I have written a lot on this blog about why I am concerned that the American economy is becoming increasingly insecure and that we are losing our competitive edge in the world. I think this week’s actions by our government underscore our insecurity. The Fed cut interest rates another 50 basis points this week, after a 75 point cut the week prior. And Congress is rushing through a measure to stimulate the economy by providing tax rebates at a time when we are already running an enormous deficit. These actions will provide a much-needed short-term jump-start to our economy but they will not fundamentally change the problems at the heart of our economy. Unfortunately, at the same time as policymakers offered short-term initiatives to calm our economy, they did not talk about the longer-term strategy to heal our economy.

In the long-term, we need three fundamental changes in our economy to improve our financial security. First, we need far greater financial transparency. We are living in a world where not even those on Wall Street understand what they are trading. This has become clear during the sub-prime debacle as financial analysts have been clueless as to how much and what kind of debt banks actually own. The lack of transparency puts the market in a roller coaster mode because one small, unexpected release of bad numbers leads analysts to worry that all the apples in the basket might be rotten.

Second, we need regulation. One problem over the Bush administration years especially has been that credit was given out with no background checks and often with teaser rates that confused the consumer. The problem was not that interest rates were too high, but that credit was too confusing and so many borrowers got in over their heads without even knowing it. Despite this, we’ve had only minimal changes in regulation since the subprime debacle.

Third, we need to balance our budgets. This is one of the reasons for our economic stability in the 1990s and our debt is one of the reasons that our dollar is declining so rapidly today because investors worldwide are losing faith in our country and our currency as our debt extends beyond our grandchildren’s ability to repay.

All of these policy issues should be part of the discussion as we figure out how to get our economy out of the current mess. I agree that at the moment we need a short-term stimulus but we also need to be repairing our economic house so we are more secure in the future.

Related posts:

1. Russia-NATO Missile Defense Cooperation
2. Assessing the State of the Union
3. Moscow’s Annual Energy Row: ‘Kto Kogo’?
4. Next economic stimulus: immigration reform
5. Toward a Better Defense: Preventive Force and International Security