Man With A Plan Common sense for Congress, from a financier-turned-senator
(MONEY Magazine) – It's been about two months since the terrorist attacks of Sept. 11. And while the White House and Congress have moved swiftly on legislation aimed at everything from rebuilding ground zero to getting quick cash to the airline industry, many big bills remain tabled as a formerly bipartisan legislature becomes more and more bifurcated.
In an effort to cut through the quibbling, I phoned a senator who has been getting high marks for his thoughtful comments on our current condition. New Jersey's Jon Corzine has begun taking the lead on economic issues as Congress grapples with a proposed stimulus program that may well exceed $100 billion. Carrying a banner waved by former Treasury Secretary Robert Rubin, and to some extent by Alan Greenspan as well, Corzine is looking for an economic package that helps boost growth without busting the federal budget.
Like Rubin, Corzine is a Democrat who moved from Wall Street investment bank Goldman Sachs to Washington, although his trip was far more expensive--Corzine spent $63 million of his own fortune to win his Senate seat. He brings a business savvy that is sadly lacking in the capital. Corzine, for instance, saw an opportunity to swap debt for equity when bailing out the nation's airlines and proposed that the government get a stake in troubled air carriers if they were to get money from Washington. It's the kind of creative thinking that Congress could use more of as it shapes a stimulus package. I spoke with Corzine during a break in the debates in mid-October.
Insana: Despite the promises of bipartisanship in Congress after Sept. 11, it seems that some key legislation is taking longer than expected, especially airline security issues and an economic stimulus package.
Corzine: Airline safety delays reflect a lack of consensus among Republicans. The airline safety bill has passed unanimously in the Senate, but there is fragmentation of House Republican positions with regard to involvement or federalization of safety employees who do the passenger screening.
Insana: It seems like a no-brainer to federalize security employees, because it seems the one thing that would get people flying again would be that level of comfort with security, no?
Corzine: Ron, it's a mystery to most all of my colleagues in the Senate. A small minority of people who are ideologically focused are holding the button. It's a shame--it's not a breakdown of bipartisanship; it's a breakdown in discipline in the Republican Party.
Insana: What about economic stimulus? That new spirit of unity in Congress seems to have disintegrated there as well. The House wants mostly tax cuts, the Senate something else.
Corzine: Here, there is some fraying by party line, although the real breakdown, again, is with those who have this ideological center of gravity that is far to the right. Some on the far right like the idea of moving up the date we cut the the 27% tax rate to 25%, but in my mind, accelerating the rate cuts undermines long-run fiscal stability.
Insana: How would you stimulate the economy and maintain budget stability?
Corzine: We ought to pull together projects that could be quickly started that have long-run economic productivity to them. Things like the rail transportation system have been underinvested in for years; there are many projects that have both safety and productivity elements that we're ready to go on. There are any number of projects with regard to national security, whether it's investing in our local police forces or in our fire departments, that could address real needs while also stimulating the economy. I believe that we'd be better served by having a high percentage of long-tailed fiscal investments that would carry productivity long into the future and would go a long way toward filling the gap that I think we're missing in the demand side of the equation.
Insana: Some of your opponents say that businesses need new tax breaks to stimulate investments and the economy and that the government shouldn't merely provide make-work programs that too often turn into pork.
Corzine: The business-led recession occurred because we had already made many--some would say excessive--investments or had gone too far in capital investments, particularly with regard to technology, and so it takes a while to work through those. That said, I'm not opposed to a short-run depreciation allowance or investment tax credit that one could show would lead to short-term investment in certain industries. But I am more interested in the public infrastructure; every time we turn around, we find another element--our homeland security, our fire, police and emergency-management systems, our public health system, our public transportation system--that has been grossly underinvested in.
We can make long-term productive investments. We've just got to be careful that they don't turn into pork. That doesn't have to be the case if we're disciplined and looking at risk vs. returns. We'll do something in the short run productively and we'll end up with benefits that last many years, not unlike the federal highway program in the 1950s.
Insana: What's the chance you can get something like this passed, given the split in Congress right now?
Corzine: It's going to be hard, but if we can get a fifty-fifty spending and tax-reduction program rather than an 80% tax program, that would make me happy.
Insana: This is one of most the complex economic periods I've seen. I'm sure you can say the same. How long do you think it takes to come out of this?
Corzine: It could be a relatively short period if we have the good fortune of consensus in Washington and a return to normalcy in world events. But if we experience another event that captures the consciousness of the country--certainly an extension of this anthrax situation qualifies for that--I think, then, that we will have an erosion of consumer confidence and a change in behavior by the public that will end up undermining a quick turnaround. If we get past the Christmas season without that confidence being restored, we have the potential for having a pretty serious recession here.
Insana: We've all heard that there is a 100% certainty in U.S. intelligence circles that there will be another terrorist attack in the U.S. Do you agree with some of your colleagues who leaked that intelligence information?
Corzine: I actually wasn't in that briefing--must've been one of the intelligence committees--but I hear enough of the speculation to believe that other events will come. Whether they're the kind of events that capture the attention of the public in quite the same way, I don't know that that's as certain. If what we have now with regard to the anthrax situation is diminished, then you have the ability for the economy to begin to return to normal because people's behavior will return to normal.
You know, there is a lot of stimulus already in the economy. The monetary policy steps taken have yet to bite. And the reality is, we're going to get some kind of stimulus program out of Congress, and I think it's going to be more rational than what's being floated in the House today. And if that's the case, then the public will take confidence in the fact that we have done the right things.
By the way, there's one other thing that I'm strongly in favor of, which does harken back to my days as a Wall Streeter, but it's not because I was a Wall Streeter. We need to do something on this insurance "backstop" that's being proposed. I think the idea of unlimited risk exposure by the private sector is virtually intolerable for a private company to take on. America has been attacked. We are being attacked because we're American, and I think it's difficult to understand how we can expect insurance companies to be the lenders of last resort in light of this.
Insana: How do you construct a backstop program, though, that allows the government to take on some of that responsibility without affecting the government's finances and unfairly subsidizing insurance companies?
Corzine: First, the insurance industry ought to take on first-loss provisions. I don't know whether it's the first $25 billion or $50 billion in losses--I'm not smart enough to pick that number--but the industry has to take it upon itself to take some of the risk, and then the government will share the risk of the loss beyond that. I think there needs to be something in place that will allow for folks to get insurance. I know we've done it for other situations--for liability issues in case of disaster at nuclear power plants--and we should do it here.
Insana: We had five rather heady years from 1995 to 2000. And we are now finishing two years that have become increasingly difficult. Can people expect to return to anything that resembles normality, either economically or in security terms, anytime soon?
Corzine: I think we had a very unusual set of circumstances in the mid-1990s. We had an extended peace period--a peace dividend that allowed us to invest in the private sector--and a huge paydown in public debt and low interest rates. That was a spectacular period for economic development. I think we still have some of those elements--the application of new technologies, a whole host of things. Some of that will be slowed down because of recent events, some of it because we overreached during that 1995-2000 period. We had Y2K spending that probably accelerated and even extended the economic expansion. It strikes me that we may not get back to that same kind of robustness in growth, but I still think that with globalization, the application of technology and the basic need to invest in an interconnecting society in general, we have an opportunity to rediscover growth.
Ron Insana is co-anchor of CNBC's Business Center and author of The Message of the Markets (HarperBusiness).