Posted by: dstieglitz | January 2, 2009

What Should We Stimulate

In the last nine months, an aimless Congress passed a relatively small stimulus package and a bailout for the financial sector, and President Bush granted $17 billion in loans to the auto industry when Congress didn’t get the job done. Those wack-a-mole rescues arguably slowed a runaway crisis, but President-elect Obama must do a lot more to restore faith in America’s economy. He must provide a vision for the future and economic stimuli that implement that vision. It may feel counterintuitive, but the Country needs a long term fix, not expensive economic bandaids like we’ve seen so far. 

Obama said: “If this crisis taught us anything, it is that Wall Street cannot thrive while Main Street suffers.” He is 100% right, of course, but the reverse is also true. Main Street cannot thrive while Wall Street suffers because only growing companies produce new jobs. Obama inherits a government that is deeply involved in regulating and owning businesses, and he has the power to pick winners and losers among companies that accept Federal loans. 

That a Republican administration partially nationalized the banking and auto industries may be a turning point in economic history. As the Country recovers from the deepest recession in 75 years, a new capitalism is emerging. One where the Federal government combats fierce global competition by setting the direction of fledgling industries like renewable energies, nanotechnology, and bioengineering in addition to mature industries like financial and auto. At a minimum it means the return of heavy government regulation. Ronald Reagan may be turning over in his grave, but the global economy is very different than in the 1980s. 

The Obama cabinet is preparing an $850 billion stimulus package to submit to Congress in January. It will probably include middle class tax cuts, funding for infrastructure projects, relief for state Medicaid programs, investments in renewable energy research, help for struggling homeowners, and other bailouts. The highly touted “shovel-ready” improvements to roads, mass-transit, water mains, and electrical distribution systems are sorely needed, but they will produce only short-term jobs. After billions have been spent to rebuild the infrastructure, the jobs will end and we will not have produced anything that the world will buy from us. It’s not about trading-off infrastructure jobs against so-called “green” jobs. America needs both to reclaim its global leadership position. 

Obama’s election margin gives him a mandate for fundamental changes. Indeed, the American people expect him to fix a spectrum of long-standing problems including:

$   Increasing unemployment and stagnant wages,

$   40 million Americans with no health coverage,

$   Collapse of housing/construction industry,

$   Imports exceeding exports by $60 billion/month,

$   12 million illegal immigrants,

$   Unhealthy dependence on foreign oil, and

$   Global warming.

These are huge opportunities masquerading as intractable problems! As Tom Friedman says in his book Hot, Flat and Crowded: “This challenge is actually an opportunity for America. If we take it on, it will revive America at home, reconnect America abroad, and retool America for tomorrow. America is always at its most powerful and most influential when it is combining innovation and inspiration, wealth-building and dignity-building, the quest for big profits and the tackling of big problems.”  

Obama must propose a vision that the restores our national pride, stimulates sustainable growth, and enables us to produce something the world will buy. Congress must cure its political constipation and pass a stimulus package that includes an energy policy, tax incentives, and regulations such as: (1) incentives for businesses to develop economically viable alternative energy sources; (2) taxes that stabilize the price of oil so competing energy sources have a stable price target; (3) guarantees that reduce the risk of building nuclear power plants; (4) regulations that require improved efficiency in vehicles, appliances, and buildings; and (5) tax credits that push consumers to buy energy efficient devices even if they are more expensive. All of these actions will put Americans back to work and encourage production of things the world will buy.

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Responses

  1. Not to mention the war follies in Iraq, Afghanistan and the yearly and generous handouts to the Israeli government …

    In my understanding, our home issues, the very same you mentioned above, are so messed up that Obama will probably do best if he keeps a tight home affairs agenda … which should definitely include stiff regulations imposed upon our financial markets …


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