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."
The devil, of course, is in the details, which have not been forthcoming nearly two months before Obama takes office in January. But the broad outlines of the plan he’s likely to put forth can be gleaned from the writings and public statements of his economic advisers, as well as his public statements.
The Center for American Progress (CAP) -- founded by John Podesta, former chief of staff to President Bill Clinton and the head of Obama’s transition team -- called for a major stimulus package in September. In its report, CAP urged lawmakers to think beyond a short-term injection of cash into consumers’ pockets, arguing that the economy needs “more than a quick fix” and the package “should address the short-term crisis in the labor market and the eight years of stagnant incomes and weak job growth.” The centerpiece of CAP’s proposal is “investing in six green infrastructure investment areas” ...
Representative Hilda L. Solis, D-Calif., has proposed a Green Jobs Act that that would rapidly train workers to fill these jobs; the National Renewable Energy Laboratory identified the lack of a skilled workforce as the key nontechnical barrier to the advancement of these industries. Jobs created from this investment would be targeted at the struggling construction and manufacturing sectors.
The think-tank also called for money to fix our creaky, 19th century infrastructure -- roads, bridges, energy grid, etc. -- and for increased spending on hurting citizens with improved food stamps benefits (the Washington Post reported this week that the number of Americans relying on food stamps will soon hit a record 30 million), extending unemployment payments, expanding Medicaid funding to the states and helping struggling families pay their heating bills this winter.
In congressional testimony earlier this month (PDF), Gene Sperling, former head of Bill Clinton’s National Economic Council and another Obama confidant, argued that “health care initiatives can be a triple-benefit in this context. First, increases in the federal match for Medicaid can be one of the quickest and most effective means to stimulate the economy. Second, an expansion of SCHIP can be a win/win in that it can provide stimulus while moving us forward on the path to universal coverage. Third, an upfront investment in health information technology can also provide stimulus and be a down payment on the goal of reducing long-term health care costs.”
Some progressive analysts have argued that these measures prop up a dinosaur economy, and that we should be undertaking a much more fundamental transformation, especially in terms of our energy needs -- where we live and how we move around and transport goods. Similarly, there’s an argument that pumping billions into an inefficient health care system that delivers the least bang for the buck in the developed world is merely throwing good money after bad. These are important points in the larger picture, and ultimately correct, but they run into a key issue when it comes to stimulating an economy in decline: short- versus long-term thinking.
Conservatives, who have already signaled opposition to a major public-works-type program, have one cogent argument on their side (semi-coherent cries of “socialism!” notwithstanding). Put simply, major projects to retool America’s industrial base and radically transform our energy economy would take a significant amount of time to get off the ground. They require planning, consensus-building among stakeholders, drawn-out legislative debates, environmental-impact studies, public input from local communities, etc. But Medicaid exists already; state and local governments are ready and needy; the infrastructure for distributing food stamps and paying unemployment bennies are in place, and Democrats in Congress have plans for upgrading America’s transportation infrastructure that are essentially ready to go -- they’ve been sitting on the shelf for years, all dressed up but with nowhere to go but to an ignominious death by Bush’s veto pen.
This gets to the heart of the debate we’ll encounter when Obama takes office in January: How much various proposals will boost economic demand in the short-term versus how much investment will be made in longer-term structural changes. Here, a balance is necessary both politically and in the context of the dire situation in which American workers and employers find themselves today.
What Is Obama Willing to Give to Get His Plans Implemented?
The Obama team appears extraordinarily fond of the trial balloon, and this week they floated the possibility of allowing Bush’s “temporary” tax cuts for the richest Americans expire as scheduled in 2011, rather than rolling them back early on in his presidency as he promised on the campaign trail.
If there’s any merit to the idea -- problematic as the 2009 deficit looks likely to reach an eye-popping trillion dollars -- it is purely political; leaving the tax cuts in place might provide some cover for Republicans to cross over and support Obama's broader economic rescue plan.
But while some Republican legislators are likely to see the economic woes as a freight train headed their way, and move to get their necks off the track by supporting a large-scale stimulus, it’s clear that conservative dead-enders are sticking to their discredited ideas. On Fox News this week -- where else? -- House Minority Leader Rep. John Boehner, R-Ohio, said, “If we’re really serious about creating jobs, what we ought to do is we ought to eliminate the capital-gains tax… Why not lower … corporate income taxes for corporations in America to help keep jobs here?”
The reason we shouldn’t is twofold. First, it's among the least-efficient ways of boosting the economy available to lawmakers. Consider this table, compiled by the nonpartisan Economic Policy Center, which suggests that in this debate, the facts once again have a liberal bias:
The second answer to Boehner’s assault on capital gains taxes is that the tools lawmakers have long relied upon to stave off recession aren’t working, and won’t. The tax burden for the wealthiest Americans has already been slashed deeply -- to their lowest levels since World War II; working Americans are too far in the hole to do much with one-time checks, besides paying down their credit card balances; the rate at which the Fed lends money to banks has been cut to 1 percent -- and may end up at zero before long -- but when people aren’t buying, even “free” money doesn’t encourage businesses to hold the line or expand, and the financial system is teetering under a mountain of funky securities and derivatives that are almost impossible to untangle and are too large for the government to buy.
So while all options should be tried to keep a deep recession from blossoming into a generational depression, all that’s really left is the kind of national transformational project for which progressives have long called, and toward which Obama appears to be leaning: put Americans to work building a 21st century economy, give them a real stake in the outcome and allow them to share in the gains.
It’s worked before.