By Ameek Singh | Originally Published: 11/14/11 7:21pm |Modified: 11/14/11 7:23pm | No comments
Singh
Singh
Part of any generation’s responsibilities is to correct the mistakes made by the last. We usually tend to think of this responsibility in the context of examples taught in grade school, such as the woman’s suffrage movement and the civil rights movement.
Although these were important advances in our history, there remain fundamental and nuanced societal shifts we should all be paying attention to. In my view, one area unanswered is our society’s short-term thinking. To fix such a problem, we have to reform our political and economic institutions.
Limit the American presidency
The governing institutions left by our founding fathers were crafted with the memory of unfettered kings unresponsive to the people.
Even with a good reading of history and great future
planning, they designed term limits on various offices to address the concerns of tyranny they had experienced and read about. But times have changed since the days of James Madison and Thomas Jefferson.
The most important change has been the nature of the American presidency. Accordingly, I think the first reform to our political institutions should be to limit the American presidency to one six-year term. The first 100 days of any presidency seem to be the only productive ones, while the rest are almost solely focused on campaigning for the next election. It’s a terrible model to govern the most important nation on the globe in times that require timely and substantive progress.
Accordingly, a structural reform like this would give a president the breathing room to make difficult decisions along much more time to explain them to the public. It would separate the president from the congress, making for a political environment where, just maybe, America could tackle long-term structural problems. This reform won’t come solve everything that is wrong with politics.
But it might give policy debates focused on the long run more of a chance to surface.
Change market incentives
It should be obvious that an unhealthy proportion of our economic activity is focused on short-term gains as opposed to the longevity of our investments.
There are a couple common sense ways to fix this problem. In my mind, these reforms should be premised on separating short-term risks with long-term returns.
First, capital gains earned on investments fewer than five years should be taxed more than those made for more than five years. It will get all of us thinking differently about how we invest for the future.
To build on that reform, I believe there should be a legal separation between financial institutions that deploy traditional forms of capital and those that offer risk capital. Much of the debate over moral hazard has been skewed by the media and others. It’s not how large an institution gets; it’s what the kind of activity it’s allowed to engage in.
The Great Depression was a crisis of small banks failing, while the crash in 2008 dealt with a handful of large financial institutions falling to their knees. Commercial bankers and investment bankers shouldn’t be working in the same building because they assess risk on different metrics. Of the many problems associated with both functions, being in the same institutions is the conflict of interest over short-term and long-term risks. Accordingly, they should be split up for all borrowers and creditors to clearly access credit risks.
Finally, there should be a push for general rules that encourage long-term thinking for all corporations. CEOs should be required to serve for a five year term in any industry they work in.
This will get them thinking to run the company for the next 10 or 20 years, not the next quarter. There’s also a case to be made to make smart reforms relating to compensation for executives. While it is appropriate to reward bonuses on results made over a short period of time, I think it’s reasonable to have a small percentage of compensation dependent on results measured over a longer period of time.
Perhaps 70 percent of compensation could be tied to performance over a quarter while 30 percent could be tied to the cumulative results an employee contributes over his or her tenure.
Put together, these reforms can help my generation refocus American society toward the long run.
Ameek Singh is a State News guest columnist and international relations and political theory and constitutional democracy senior. Reach him at sodhiame@msu.edu.
Singh
Singh
Part of any generation’s responsibilities is to correct the mistakes made by the last. We usually tend to think of this responsibility in the context of examples taught in grade school, such as the woman’s suffrage movement and the civil rights movement.
Although these were important advances in our history, there remain fundamental and nuanced societal shifts we should all be paying attention to. In my view, one area unanswered is our society’s short-term thinking. To fix such a problem, we have to reform our political and economic institutions.
Limit the American presidency
The governing institutions left by our founding fathers were crafted with the memory of unfettered kings unresponsive to the people.
Even with a good reading of history and great future
planning, they designed term limits on various offices to address the concerns of tyranny they had experienced and read about. But times have changed since the days of James Madison and Thomas Jefferson.
The most important change has been the nature of the American presidency. Accordingly, I think the first reform to our political institutions should be to limit the American presidency to one six-year term. The first 100 days of any presidency seem to be the only productive ones, while the rest are almost solely focused on campaigning for the next election. It’s a terrible model to govern the most important nation on the globe in times that require timely and substantive progress.
Accordingly, a structural reform like this would give a president the breathing room to make difficult decisions along much more time to explain them to the public. It would separate the president from the congress, making for a political environment where, just maybe, America could tackle long-term structural problems. This reform won’t come solve everything that is wrong with politics.
But it might give policy debates focused on the long run more of a chance to surface.
Change market incentives
It should be obvious that an unhealthy proportion of our economic activity is focused on short-term gains as opposed to the longevity of our investments.
There are a couple common sense ways to fix this problem. In my mind, these reforms should be premised on separating short-term risks with long-term returns.
First, capital gains earned on investments fewer than five years should be taxed more than those made for more than five years. It will get all of us thinking differently about how we invest for the future.
To build on that reform, I believe there should be a legal separation between financial institutions that deploy traditional forms of capital and those that offer risk capital. Much of the debate over moral hazard has been skewed by the media and others. It’s not how large an institution gets; it’s what the kind of activity it’s allowed to engage in.
The Great Depression was a crisis of small banks failing, while the crash in 2008 dealt with a handful of large financial institutions falling to their knees. Commercial bankers and investment bankers shouldn’t be working in the same building because they assess risk on different metrics. Of the many problems associated with both functions, being in the same institutions is the conflict of interest over short-term and long-term risks. Accordingly, they should be split up for all borrowers and creditors to clearly access credit risks.
Finally, there should be a push for general rules that encourage long-term thinking for all corporations. CEOs should be required to serve for a five year term in any industry they work in.
This will get them thinking to run the company for the next 10 or 20 years, not the next quarter. There’s also a case to be made to make smart reforms relating to compensation for executives. While it is appropriate to reward bonuses on results made over a short period of time, I think it’s reasonable to have a small percentage of compensation dependent on results measured over a longer period of time.
Perhaps 70 percent of compensation could be tied to performance over a quarter while 30 percent could be tied to the cumulative results an employee contributes over his or her tenure.
Put together, these reforms can help my generation refocus American society toward the long run.
Ameek Singh is a State News guest columnist and international relations and political theory and constitutional democracy senior. Reach him at sodhiame@msu.edu.
Comments
Post a Comment
https://gengwg.blogspot.com/