Spare the rod, spoil the economy.
That’s the message Thursday from Pimco, the big bond manager run by the talkative Bill Gross (right) and owned by giant insurer Allianz of Germany.
In a viewpoint piece posted on the firm’s web site, a Pimco executive dubs the United States the “teen drama economy,” saying growth and jobs won’t return till policymakers show some guts and take an axe to troublesome long-term imbalances.
Doves who would boost stimulus spending and hawks who would slash it miss the point, says Saumil Parikh, a managing director at the Newport Beach, Calif., company.
Instead, he writes, “the debate should be about how fiscal and monetary policy can be re-tuned toward making medium-term structural changes in the U.S. economy rather than addressing short-term cyclical demand.”
The government’s efforts to prop up the housing sector and prop up the big banks have been counterproductive, he writes. Instead of trying to push strapped consumers back to the mall, he says, the feds should take up five structural problems that demand “urgent attention”:
- An overreliance on consumer spending;
- A misallocation of capital to the unproductive housing and finance industries;
- A shrinking labor force and high long-term joblessness;
- A failure to protect intellectual property rights; and
- A growing energy deficit.
In response, he proposes the United States adopt a value added tax, boost investment in research and development and cut the minimum wage, among other things.
He also advocates increased funding of education and retraining loans, and reform of immigration laws to restore the nation’s appeal to the globe’s best and brightest.
None of this will be easy, he stresses, with some understatement. Deficit hawks will disparage the idea of spending taxpayer money on new educational programs, and the doves won’t flock to a cut in the minimum wage. Immigration reform has been something other than an easy sell in recent years.
Still, the note marks a slightly more constructive tone at Pimco, where Gross ranted in his January commentary that “our government doesn’t work anymore.” Nothing ventured, nothing gained.