Obama Takes Charge -- Will He Bail Out America?

Barack Obama has said that there can only be one president at a time. By all appearances, in the midst of an almost unprecedented economic meltdown, it is he.

Obama gave three press conferences this week, aimed at reassuring a jittery nation -- and world -- that he was preparing to tackle the recession head-on. Even as Bush’s Treasury Department announced an array of new interventions to prop up the moribund economy, Bush himself has been out of sight and out of mind. On Tuesday, while Obama was calling for a massive spending program to boost slacking demand for everything from houses to cars to consumer gadgets, Bush was in Kentucky, “thanking” troops returning from his wars in Afghanistan and Iraq. Bush hasn’t held a full presser since August. 

Obama hinted that he would adopt an approach that progressives have been urging Washington to take since the economy went into free-fall: spending as much as $800 billion to revive the "nuts and bolts" economy. It’s a marked difference from the Bush administration’s (almost) singular focus -- which, in fairness, appears to be changing -- on recapitalizing large, teetering financial institutions.

The task the new president will face is daunting. New economic data released this week show an increasing risk of a “deflationary spiral” in which layoffs that follow the massive pile of national wealth that has evaporated in the financial crisis and bursting housing bubble -- and the fear of being hurt by the economic mess among those whose jobs are secure -- cause people to rein in spending, which causes the supply of just about everything to outstrip demand, which leads to lower prices, which hurts firms' profits, which leads to even more layoffs and even greater economic insecurity.

The four-week average of new unemployment claims hit its highest mark since the deep recession of 1983; consumer spending, which accounts for two-thirds of the American economy, dropped by a full percentage point last month -- the third consecutive monthly decline -- and prices fell by more than a half-point in October. A key index of business spending dropped 4 percent in October; over the past three months, firms’ capital spending has plummeted by a rate of 33 percent per year, a figure that one prominent economist characterized as “terrifying.”

Obama Sending Right Signals

During the presidential campaign, Obama called for a $175 billion injection of cash into the economy with new infrastructure spending, help for cash-strapped state and local governments whose tax revenues have been decimated by the collapse of real estate values and a $1,000 tax credit for working families. Now, Obama and his surrogates are hinting that they might spend as much as five times that amount. On Tuesday, the president-elect called for "a two-year nationwide effort to jump-start job creation in America and lay the foundation for a strong and growing economy." He promised to "put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels." He added, "These aren't just steps to pull ourselves out of this immediate crisis; these are long-term investments in our economic future that have been ignored for far too long." Congressional Democrats, many of whom have been calling for such a package for some time, say that it’ll create up to 2.5 million jobs over the next two years.

In crisis, there is opportunity, and Obama appears to be seizing it. He has a clear mandate -- having won not only an Electoral College landslide, but 53 percent of the popular vote -- and he can, at least to some degree, use it and the financial mess to overcome the kind of ideological battles he’ll face from congressional Republicans, who have so far balked at the idea of spending on infrastructure and public works. The Washington Post reported this week that while Obama’s stimulus plan is “cast as a response to a rapidly worsening crisis, [it] could enable Obama to shift massive sums to domestic priorities that Democrats say have long been neglected, such as health care and education. It also could provide seed money to reshape major U.S. industries, hastening the production of wind and solar energy and fuel-efficient cars, for example.” Obama said the plan would be "a down payment on the type of reform my administration will bring to Washington."