by Caitlin Kenney

Simon Johnson and his colleagues over at Baseline Scenario have a guest post on the Wall Street Journal's Real Time Economics blog today. It's their own letter to president-elect Barack Obama.

1. Take advantage of competition. The US has some of the best run companies in the world. Ordinarily, the stronger companies acquire and restructure the weaker, and the weakest fail. There may be a difficult process of restructuring and consolidation in many sectors, but it would be a mistake to provide government support that will only delay necessary changes. In particular, support for auto companies can only be justified if it will produce a stronger, globally competitive, more fuel-efficient auto industry. Affected workers should be supported with money (extended unemployment benefits and a better health care safety net) and job retraining assistance. But the private sector should sort out the winners and the losers.

2. Scale up investments in education, with an emphasis on spreading technology-related skills through the population. There should be a massive expansion in community colleges, focusing on people who only completed high school; our major engineering schools should be challenged to take on this task directly. The "high school only" vs. "completed college" productivity and income divide in the US needs to be closed, for both equity and efficiency reasons. This will ensure competitiveness in tomorrow's global economy.

 

3. Continue to foster immigration. The US has benefited greatly from immigrants, who contribute critical skills to our established companies and start small businesses of all descriptions. As unemployment rises, there will be a knee-jerk reaction to cut immigration; the Obama administration needs to lead public opinion away from this short-sighted nativism. Of course, this will be easier if middle-class Americans see a promising economic future for themselves.

4. Build a single consolidated banking and securities regulator. This will not help with the current recession, but it should help head off the next bubble. We are creating, through government support, some mega-banks. Unless we counterbalance these banks, we will soon find ourselves in the unfortunate situation of Europe today, where powerful banks run rings around fragmented regulators.

5. Assume global leadership. Weakness in the global economy presents a major risk to the US. If slow adjustment in Europe morphs into serious fiscal problems, or emerging markets suffer political instability, then (a) we will have trouble selling to the world and (b) the dollar will continue its recent appreciation. It is critical to resist the temptation of protectionism and work with other countries both to ensure continued growth in global trade and to create the broadest possible opportunities for American companies.

Read Planet Money listeners advice to the president-elect.