Friday, January 9, 2009

Obama's Recovery Plan Moves to the Center

Republican Senate Minority Leader Mitch McConnell says he has no qualms with President-elect Barack Obama's stimulus plan – and that could be a problem in itself.

After eight years of tax cuts under President Bush, some Democrats – especially Northeastern liberals like Sen. John Kerry and Rep. Barney Frank – think that giving tax breaks to businesses and middle-class families will not create long-term job growth. Scott Lehigh, writing in the Boston Globe's op-ed page, thinks tax cuts make little sense and wonders whether they exist in Obama's plan as a carrot to Republicans.

Democrats are also leery about heaping more debt on the books. The Congressional Budget Office estimates the deficit will reach $1.2 trillion in 2009, not including Obama's stimulus plan. Some in Washington also believe the total stimulus price tag will ultimately reach closer to $1 trillion. Obama's preliminary estimate is around $775 billion.

With 11 days until inauguration day, Obama, like President Franklin D. Roosevelt 76 years ago, will be afforded a brief honeymoon period in Washington and this is the impetus for the presidential feel of yesterday's speech at George Mason University.

Former labor secretary under President Clinton, Robert Reich, believes the government stimulus should reach upwards of $900 billion spread over two years and urges for it to be done quickly. "Without federal action, next year could be even worse," Reich told congressmen at a forum discussing the stimulus bill in Washington.

Reich will discuss the economic prospects of the country at The Commonwealth Club of California next Wednesday when he gives a special forecast for the economy in 2009.

On his blog, Reich urges Congress to spend without caution of overextending itself.

As the buyer of last resort, the federal government must respond if that cycle is to be reversed. In my judgment, this will require a stimulus of about 6 and a half percent of gross domestic product, or a total of some $900 billion, spread over two years. That’s my estimate for the shortfall in private demand. But the federal government should stand ready to spend larger sums if necessary to get the economy back on track toward full capacity. The danger is not that the government will do too much; the danger is that it will do too little, too late.

Reich agrees with Obama's plan to upgrade the nation's infrastructure as does Paul Krugman, but some disagree with the basic Keynesian approach. Larry Kudlow at the National Review mocks Obama's progressive pedigree by saying his stimulus plan is somewhat Reaganesque. "Nobody really believes infrastructure spending will end the recession or create permanent new jobs. However, it’s interesting just how much the Obama plan has changed since the election," he wrote.

Here lies the problem facing Washington: in the shadow of a clumsily rolled out $700 billion bailout for the financial sector where many do not know where the money went and fewer gained any stimulus from the investment, how will what many people see as a chronically ineffective legislative branch deal decisively with the economy? Obama wants a bill ready to sign from Congress by Feb. 13. Speaker of the House Nancy Pelosi is already pushing to extend the deadline. Meanwhile, unemployment reaches 7.2 percent and the prospect of this year being somewhat better than the last decreases.

1 comments:

jj999 said...

I've always thought Robert Reich had a unique perspective on the economy. And he may have a point here. Maybe the stimulus/recovery plan does need to be bigger. But he is certainly correct that more thought needs to be put into it. I think we need the stimulus/recovery plan, and it needs to be very large, but Congress needs to make sure that it continues providing benefits in the long term, not just a shot in the arm for the short term.

I'm surprised that Mitch McConnell has no qualms with the plan as it has been proposed. I think we need differing opinions on the plan to make sure the best possible plan is put forward. I'm glad there is at least some debate going on in the Democratic party about the stimulus package. This is a huge economic crisis and we need to make sure that any solution offered is sensible, fixes known problems, and doesn't add any unnecessary burdens.

I disagree with Larry Kudlow. Spending money on infrastructure will help strengthen the economy in the long term. Congress can do this in ways beyond direct spending. They can also focus on removing any unnecessary legal and regulatory barriers that prevent businesses from investing in infrastructure programs. Also, it seems like some businesses have enough money to invest, but they aren't using it toward any productive end. Congress can help encourage them to invest by working with them to provide incentives to use that money for infrastructure programs.

Beyond that, Congress can also focus targeted tax cuts for small businesses, businesses which can generate a large number of new jobs, and businesses taking risks to open up new economic sectors. In addition to any short-term tax cuts for individuals, these targeted tax cuts could help stabilize economic growth in the long term by helping businesses return to their traditional role of being the engine of the economy.

Of course, there are many other aspects of the stimulus plan than just these. But the important thing that Congress needs to remember is that it is more important to fix the economy the right way than to fix it quickly in a way which could lead to more problems in the future.

I recently saw that the Friends of the U.S. Chamber of Commerce is working with Congress to encourage them to take all viewpoints into account to make sure the economic stimulus plan has the maximum possible benefit for the country, both in the short-term and the long-term. I encourage everyone to sign their petition to help Congress see the wisdom of creating a comprehensive economic recovery plan - http://www.friendsoftheuschamber.com/takeaction/index.cfm?ID=76

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