Corrected 11/19/08

Most people in America understand that radical change is overdue in this country. The votes they cast in the last election signaled this basic understanding. Few people who cast those votes understand how much change is needed to save the U.S. economy and economies around the world.

Low wages don’t leave room in family budgets for health care expenses. Inflexible work schedules and long hours don’t leave time for workers to do what it takes to prevent disease. The resulting chronic illnesses make workers less productive and increase health care costs for employers.

Employers reduce expenses by slashing some jobs, moving others to foreign countries, and cutting work hours for remaining employees. That leaves employees without the means to pay for retraining programs that can prepare them to find better jobs. They stop making payments on second mortgages and credit cards that have helped them live beyond their means.

Unemployed and underemployed workers apply for public assistance as the tax base that pays for the assistance shrinks. People who once supported non-profit agencies that help the needy now seek help from those agencies. The agencies must turn people away.

Next add to the mix students who have borrowed heavily to prepare for jobs that aren’t there and now can’t repay their loans. This leaves lenders reluctant to lend money to anyone. Businesses that depend upon credit lay off more workers or close their doors. Tax revenues decrease even more, which leads government officials to slash budgets and lay off still more workers.

The list of people who have been reduced to buying just necessities, when they can afford them, is growing daily. When we stop buying, people in other countries who grow or manufacture many of the goods we used to buy make less money. They, in turn, purchase fewer products from us.

The country has not faced this many challenges since the American Revolution, says Nouriel Roubini, Associate Professor of Economics at New York University’s Stern School of Business and former adviser to the U.S. Treasury Department.

In a consumer-driven society, there can be no stability on Wall Street without stability on Main Street. In spite of this fact, most of the aid in this economic crisis has been directed toward the financial services industry. The new man in town promised to change all that, and the people voted to let him try.

Reports are circulating that President-elect Obama’s advisers are weighing the political consequences of pushing incremental versus rapid changes. In a democratic society, the people must be willing to come along for the ride, but they will only continue the journey if they see results.

Effective solutions will involve careful planning that addresses short-term, intermediate, and long-term needs. Here are my suggestions for the next phase of the new American Revolution:

Meet again with lenders to develop and enforce a mandatory plan for restructuring mortgages. The new loans should be closer to 30 percent of an applicant’s available income. That was the accepted standard before the housing crisis began. The plan announced earlier this week will allow buyers to pay up to 38 percent of income. It also reduces the lending rate for only five years before it begins to slowly climb again. Both Sheila Bair, chairman of the Federal Deposit Insurance Corporation (FDIC), and Bruce Marks, head of the Neighborhood Assistance Corporation of America (NACA), have said the new plan is not good enough.

Rewrite new mortgages to include penalties for anyone who abandons a home. Some mortgages include “no recourse” provisions. Many lenders are waiting for a government bailout, and more people are shirking their responsibilities every day. The government can’t continue to reward bad behavior.  City and state officials also need to know how much tax revenue they will have to meet their obligations.

Recognize that we have a housing crisis, not a mortgage crisis. Allan Meltzer, economist and professor of Political Economy at Carnegie Mellon University, says housing prices won’t stop falling and credit won’t ease until the excess supply of homes decreases and the balance sheets at financial institutions stop shrinking. Meltzer proposes a tax credit through the end of next year for those who purchase homes that have already been foreclosed. This move will kick start the slumping construction industry as well.

Merge General Motors with one of the other “big three” automakers, then allow the remaining companies to reorganize under bankruptcy protection. This idea came from both Bill Ackman, CEO of hedge fund management company Pershing Square Capital Management, and Joseph Stiglitz, a Nobel Prize winning economist and professor. U.S. automakers aren’t prepared to meet the challenges of today or those of tomorrow. Bankruptcy will force them to develop long-range strategies.

Recognize that we have a service-based economy. Our economy is imploding because we have forgotten a basic principle of good business–find a need and fill it. Low-, medium-, and high-skilled workers are needed in all areas. Craftsmen, accountants, educators, writers and editors, engineers, and people with other transferable skills are essential.

Move displaced workers into similar jobs rebuilding the infrastructure and building a “green economy.” Infrastructure projects can build and repair roads and bridges and expand public transportation. Overlap them with public and private “green” construction projects that rebuild communities affected by disasters. Retrofit buildings that don’t meet energy efficiency standards. By doubling our current rate of recycling, including waste from these construction projects, we could replace almost every job that has been lost this year. Pulitzer Prize-winning journalist, author, and columnist Thomas L. Friedman says “green” projects can employ workers with diverse skills.

Subsidize or give tax credits to organizations that hire displaced workers. Those who move into related positions may even be able to start immediately and train on the job. Workers who have good jobs are less dependent upon government assistance and can afford to stay healthy.

Without changing the policies that created this mess, we will not see the end of the downward spiral or avoid creating another one. My next post will address strategies for making intermediate and long-term changes that address both domestic and foreign policy issues.

The second sentence in the eighth paragraph has been corrected to end with financial services industry instead of businesses. The word occupants has been changed to anyone in the first sentence of the twelfth paragraph.

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Jacqueline Laurette Jones is author of Unmasking a Diagnosis: How to get Help for a Confusing Chronic Illness Without Filing for Bankruptcy.