A Buyer’s Market for Change

So smile when you read a headline that says “Investors lose as market falls.” Edit it in your mind to “Disinvestors lose as market falls—but investors gain.” - Warren Buffett

In the past four weeks, we’ve seen Lehman Brothers crater; the Federal Reserve re-nationalize Fannie Mae and Freddie Mac, then bail out AIG (which insures the mortgage-backed debt Fannie Mae and Freddie Mac hold); and a rash of fire sales (Bank of America bought Merrill Lynch, JP Morgan/Chase gobbled up Washington Mutual, and Wells Fargo moved to snap up Wachovia).  On top of all this, the clearest indicator of massive change to come, though, was the move by the U.S., U.K., and other governments to directly invest taxpayer funds in financial institutions.

And it’s going to get still worse.  The “rescue plan” is just the finger in the dam.  Count on the crisis to boil over again shortly after the November 4 election.  (Hopefully, a new President-elect Obama will have a team ready to go and will call a lame-duck session of Congress to get back to work.)

Odds are that our government and others around the world will move from stabilizing finance to adopting massive stimulus plans (to my wholly untrained eye, it seems like this may be the final victory of Keynes over Milton Friedman). The conventional wisdom will be that we need to focus exclusively on boosting employment and demand,  and that we won’t be able to afford health coverage for all, improvements in education, or any number of other important goals. (Heaven forbid we actually dig into our pockets for something that benefits the other 95% of us.)  Public interest advocates will need to fight this tide as I wrote here back in March after the Bear Stearns failure. 

A potential silver lining, though, is that positive change for low income and vulnerable people can be fairly cheap. By “cheap,” I don’t mean change isn’t valuable (quite the opposite), and I also certainly don’t mean to invoke the “talk is cheap” aphorism, either. The point is that making significant positive changes in the lives of great numbers of people, however, can be far more affordable than we often think. So we need to begin to think differently about it. 

In the U.S., at least, when we discuss large scale problems, like improving health or education for low income people, or reducing gang violence, we tend to envision astronomical numbers. In health, for example, we all know (or think we do) how expensive medical care is, and how quickly the cost of medical care is rising. But how many of us know that access to and quality of medical care may account for only 10% of health outcomes for all of us. The other 90% is made up by genetics (20%), and environmental (20%) and behavioral (50%) factors—where we live, what we choose to put into our bodies, and the like. The success of promotora programs, for example, has shown that for very modest costs we can achieve substantial gains, yet we continue to spend much more on the most expensive factor, health care, rather than trying to impact the behavioral and environmental factors.  (For a short, accessible summary, see this interview with Larry Cohen, founder of the Prevention Institute.)

On top of imagining stratospheric costs, we also, sadly, tend to be very pessimistic about our ability as a society to make headway against such large scale problems. How many times have you heard someone say “we had a ‘War on Poverty’ and it failed miserably.”  This kind of conventional wisdom is false; as Nicholas Lemann, for one, showed in The Promised Land, the War on Poverty wasn’t really even a skirmish, in terms of the actual funding and energy that went into it. New Deal-era policies were very successful, for example, at virtually eliminating poverty among the elderly and increasing wages and standards of living for vast numbers of people, as Paul Krugman argues in The Conscience of a Liberal. And for 2 cents on the dollar, we could vastly improve the teaching corps and public education, provide a livable basic wage, and provide universal health coverage, as Matt Miller has persuasively argued in The 2 % Solution.

So when people begin to say we can’t afford to provide health care for all, or improve education, we should remember to turn the question around: How can we afford NOT to? And as long as we’re going to be adopting deficit spending on a massive scale as an intentional recovery strategy, certainly we can afford to borrow a few more pennies on the dollar? Not least, as Warren Buffett’s quote above argues, investing in those goals now rather than later is the smart play, it will bring much higher returns.

One other related question will be how important the economics of human development will become to our foreign policy, too.  Amartya Sen has observed that the clearest indicator of improvement in a nation is the increased educational attainment of women. Moving that needle should become a central principle in our foreign policy. (For a compelling case for this, check out this video about The Girl Effect (hat tip to Caroline Preston at Give and Take.)

Peter Manzo is the director of strategic initiatives for the Advancement Project, a civil rights advocacy organization, and a senior research fellow with the Center for Civil Society in the UCLA School of Public Affairs. Previously, he was the executive director and general counsel of the Center for Nonprofit Management. 

Read more stories by Peter Manzo.