The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- A friend whose judgment I respect said the just-published study on U.S. economic policies titled the Way Forward by Daniel Alpert, Robert Hockett, and Nouriel Roubini was a must read. Joe Nocera of The New York Times, also gave it a lot of attention, writing: "Its analysis of our problems is sobering. Its proposed solutions are far more ambitious than anything being talked about in Washington." So I read it. The authors' omission of what caused the world's economic problems and what should be done about them is so glaring it makes me wonder who paid for this study.
Summary of StudyThe authors do an excellent job of detailing today's global economic problems:
- high unemployment and the threat of renewed recession;
- the possibility that the European sovereign debt problem will spiral into a full-fledged global banking crisis; and
- the hoped-for demand boost from emerging-market countries is fading as policies to control inflation and credit creation kick in.
Their Solutions: 'Three Pillars'
- Pillar 1: a $1.2 trillion five-to-seven year public investment program;
- Pillar 2: a national debt-restructuring program focusing on banking and real-estate sectors in particular;
- Pillar 3: global reforms.
DiagnosisAHR say the world got into this mess as the result of two related factors:
- The "worst credit-fueled asset-price bubble and burst since the late 1920s"; and
- "The steady entry into the world economy of successive waves of new export-oriented economies, beginning with Japan and the Asian tigers in the 1980s and peaking with China in the early 2000s, with more than two billion newly employable workers. The integration of these high-savings, lower wage economies into the global economy, occurring as it did against the backdrop of dramatic productivity gains rooted in new information technologies and the globalization of corporate supply chains, decisively shifted the balance of global supply and demand. In consequence, the world economy now is beset by excess supplies of labor, capital, and productive capacity."
- buy up these risky assets;
- package them;
- in some cases insure them; and
- sell them off for a commission.