The Bluegrass and Beyond

Paul Volcker, who was chairman of the Federal Reserve under presidents Jimmy Carter and Ronald Reagan and is a top adviser to President Barack Obama, has earned a reputation as one of the rarest of creatures: a straight-talking economist.

Volcker was true to form Thursday, when he came to Kentucky to speak at the Shakertown Roundtable, a gathering of about 60 of the state’s most influential leaders in business, government, education and philanthropy.

The 82-year-old economist was blunt in his assessment of what caused this economic crisis and what’s needed to fix it. And he brought things back into focus when some executives tried to point fingers, shift blame and complain about recovery strategies.

“We spent, as a nation, more than we were producing,” Volcker said. Mix that with a real-estate bubble, reckless financial manipulation and too little government oversight, and it was a recipe for disaster.

“We were leveraging the economy … and then it all unraveled,” he said, adding that the recovery will be a “considerable slog” that could take years.

Volcker has advised Obama to restore legal restrictions, enacted after the Great Depression but repealed in the 1990s, that separated investment and commercial banking and prevented banks from becoming “too big to fail.”

The Obama administration has balked at Volcker’s suggestions amid industry opposition. But Volcker warned that without such reforms the nation could face a repeat of its current crisis in a few years.

After Volcker’s remarks, the 11 other panelists gave their views on the economy and the proper relationship between business and government. They included Gov. Steve Beshear, Louisville Mayor Jerry Abramson, the presidents of the universities of Kentucky and Louisville and several business leaders.

David Grissom, president of Mayfair Capital in Louisville, said he was depressed at the quality of national leadership. He complained about the huge amounts of money government is using to try to rescue the economy.

Julie Janson, president of Duke Energy in Kentucky and Ohio, lamented new government regulations on energy and utilities.

Churchill Downs Chief Executive Robert Evans warned this was a bad time to raise taxes and increase government regulation of business.

U of L President Jim Ramsey cited sobering statistics about Kentucky’s economic “blood bath,” such as the decline in manufacturing jobs in the past decade from 310,000 to 200,000 and the fact that Kentucky spends $9,000 a year on each public school student, $6,000 on each college student — and $19,000 on each prison inmate.

As each panelist took his or her turn, things turned gloomier. Then the last panelist, the governor, spoke.

Beshear said he thinks Kentucky is in better shape economically than many states and, with smart strategy and investment, the state could position itself to take advantage of future economic opportunities, such as advanced manufacturing.

“Until I heard from the governor, I was in a state of desperation,” Volcker deadpanned, adding that he agrees with Beshear’s optimism.

But, Volcker said, Kentucky and the nation must see the economic crisis as a “wake-up call” and make some fundamental changes.

Volcker also agreed with comments by UK President Lee Todd, who emphasized the need for more rigorous math and science education and more technology research that can be commercialized to create jobs.

Todd criticized the recent emphasis on the service economy: “We can’t create wealth by serving hamburgers to each other.”

In the best line of the day, Volcker said Americans need to shift away from “financial engineering” and focus once again on civil, mechanical and electrical engineering.

We need to regain our leadership in technology development and manufacturing, he said, rather than churning out so many business school graduates who are focused on making big, quick and easy profits by manipulating money.

If there’s one thing this year’s Shakertown Roundtable made clear, it is this: Economic recovery will require us to figure out how to prosper in a new and different global economy, rather than simply trying to get back what we have lost.

Centre College President John Roush, commenting from the audience, perhaps said it best: “I think we are going back to a place of well-being. But it’s a different place.”

The United Way pledge card showed up in my office mailbox this week.

I’m a big fan of United Way of the Bluegrass, the organization where some of Central Kentucky’s best people come together to help others. United Way supports 95 non-profit groups and 251 programs that make this a better place to live.

Like a lot of people, I don’t expect to get a raise next year. I might not be able to give more to United Way, but I also know I can’t afford to give less.

Charities dread hard economic times such as these; needs rise and contributions often fall. Kathy Plomin, the United Way of the Bluegrass’ president, is keeping her fingers crossed.

One of United Way’s big efforts is the 2-1-1 telephone hotline, where people in the region call operators around the clock to be referred to an organization that can help them with specific needs. Call volume has tripled this past year, with most people needing help with things such as housing, utility bills and food.

“What we’re finding is that people who never needed services before are calling for them,” Plomin said.

So far, United Way contributions are holding up. The organization has received pledges of $5 million toward its $8 million goal for the year. The big problem will be “pledge loss,” she said.

Employees at 1,800 companies in the region contribute to United Way through payroll deduction. But as employees are laid off, or leave work and are not replaced, pledges go unmet.

Normally, United Way budgets pledge loss at 7 percent. “This year, I think we’re going to have to budget in double-digits for pledge loss,” she said. “And there are some companies we’re not even going to because they’re having such a hard time.”

United Way hopes to offset pledge loss by recruiting more companies. More than 40 have been added to the system this year. The organization also has conducted several phone-athons among lapsed donors, raising tens of thousands of dollars.

“You have two schools of thought: Some people are afraid, because of the economy, to put themselves out there with donations,” Plomin said. “But some others are just caring more, and giving more, than they normally do.”

Other non-profits also are cautiously optimistic about contributions amid rising demand for their services.

“People are still generous,” said Kim Livesay, community relations director at the Hope Center shelter. “It looks like we’re going to make it through the holidays, but who knows about January.”

The Hope Center is coming off its biggest year ever for private donations, which account for more than 25 percent of funding. Its shelter and recovery programs get an additional 6.6 percent of funding from the United Way, with most of the rest coming from federal, state and local governments.

One organization already seeing a drop in contributions is The Salvation Army. The annual Angel Tree campaign is trying to provide gifts for 5,000 children — 1,000 more than last Christmas. But it is still seeking sponsors for more than 500 of those children before the campaign ends Sunday.

More severe is the “kettle campaign” — those bundled-up bell-ringers you see outside of stores with red kettles on tripods. With a dozen days to go, the Salvation Army is $157,000 short of its $350,000 goal, Major Debra Ashcraft said.

The Salvation Army’s William Booth Society, its annual major donor campaign, is coming up soon. “We’ve heard back from a couple of those folks who’ve said they just really can’t give at the level they’ve given before as a result of the economy,” she said.

“We’re in a very generous community,” Ashcraft said. “But the need has never been greater. We don’t think that the giving is keeping up with the extra demand.”

It’s something worth thinking about as you pass those bell-ringers, look at your own United Way pledge card or see people in need on the streets.

“In my lifetime, I don’t think we’ve seen anything like this,” Plomin said of the economic downturn. “Everybody’s kind of wondering what’s going to happen.”

It looks as if Detroit may get its bailout after all.

If a reluctant Congress approves, the Big Three automakers could get $15 billion in short-term loans, following in the footsteps of banks and brokerages that are receiving $700 billion in public assistance.

Like many taxpayers, I’m angry at having to come to the rescue of greedy and incompetent corporate executives, but they seem to have us over a barrel.

Without the Wall Street bailout, the credit squeeze might have cost even more Kentuckians their jobs and savings and left the state with an even bigger budget deficit. A Detroit meltdown could wash away thousands more Kentucky jobs, from the Corvette plant in Bowling Green to the Ford plants in Louisville and dozens of parts suppliers across the state.

How did we get into this mess? Corporate greed and incompetence, for sure, as well as some irresponsible consumers. But I keep thinking that we could have avoided this crisis if government had been doing its job for the past eight years — if not the past quarter-century.

While we’re fixing the economy, it would be useful to have some sober discussions about the proper relationship between business and government. For decades, some politicians and big-money special interests have reduced that discussion to simplistic sound-bites: Business good. Big business better. Government bad. Government regulation very bad.

Government doesn’t create wealth, business does. Capitalism is the world’s best economic system because of human creativity, entrepreneurial spirit, enlightened self-interest and the nimbleness of business people to respond to the market’s needs.

But for capitalism to succeed over the long haul, it needs a fair and healthy marketplace where government sets some boundaries and enforces rules. Business people are the first to say that their job is to make a profit for their owners, not watch out for society’s best interests. That’s government’s job.

The Wall Street meltdown can be traced to greed and abuse made possible by deregulation and lack of government oversight. And if government had pushed harder for tough fuel economy standards — or helped fund innovation the way Japan has done with its automakers — the Big Three and the rest of us would be in a lot better shape now.

Honestly, I’m almost as concerned about government “oversight” of the auto industry as I am about government’s apparent lack of oversight of the financial services industry, which is getting nearly 50 times more money with few strings attached.

Government isn’t suited to running a business; it’s too bureaucratic and political. Of course, some would say the same about big corporations, especially public corporations more focused on short-term gain than long-term sustainability. Anyone who has ever worked for a big corporation knows why the comic strip Dilbert is so popular.

Some government regulation is essential; otherwise, our air and water would look like China’s and investors would have even less confidence in the safety of our financial system than they do now. But examples of overregulation are easy to find. Just ask any health care professional who deals with the well-meaning but nightmarish federal privacy law known as HIPAA.

As the nation feels its way toward a new relationship between government and business, a good subject to consider is health care.

Unlike in most industrialized nations, our health care system is left largely in private hands. Health care costs have traditionally been borne by business, although, as those costs have risen dramatically, companies have shifted more of them to workers.

The United States spends 16.5 percent of gross domestic product on health care — much more than any other nation — and that figure rises every year. Yet we have an inefficient system where an estimated 47 million people are uninsured and many families are just one serious illness away from financial ruin.

Why should businesses bear that burden? If government took more responsibility for managing health care with private providers, many people think both quality and coverage could be improved. Freed from those benefits burdens, companies could be more competitive globally. Plus, think of the entrepreneurial potential that could be unleashed if so many workers weren’t tied to jobs they hate by fear of losing health care benefits.

Of course, any attempt at change will be vigorously opposed by the health care industrial complex, which profits from the current system’s inefficiency. It will raise fears about “socialized medicine,” even though public-private systems such as Medicare, while hardly perfect, have worked well for decades.

Like many Americans, I’m uncomfortable with government trying to manage big business. But if government would use this opportunity to learn how to do a better job of governing, we might be spared more corporate bailouts in the future.