THE PLANK JANUARY 8, 2009
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Some of Barack Obama's recent comments have made progressive writers, myself included, a little nervous. Yesterday's suggestions that he intended to reform entitlements--i.e., Medicare and Social Security--only heightened that anxiety (although one adviser assured me Obama had "no secret plan" to gut Social Security).
But it's important to put everything in context, which is why Obama's economic today may prove very important. The point of the speech is to introduce, formally, the economic stimulus package he and his advisors have been constructing. Note this key passage, circulated this morning among other excerpts from the prepared remarks:
There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy. It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy – where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.
In case the message isn't clear, check out the way ABC's Note decided to bill the speech in this morning's e-mail alert:
Government Good -- Obama Argues that Government is the Answer
It sounds like Obama is saying what every good liberal would want him to say. And it's a reminder that, for all of the recent discussion over including some tax cuts in the recovery package, the primary issue in this debate remains the overall size of the stimulus.
Obama, to his credit, has bid the price up to nearly $800 billion--and suggested he'd go higher if Congress could find good ways to spend the money. (Of course, as Paul Krugman has been warning, even that might not be enough to do the job.) He's also prepared the public for the likelihood that, for the next year or two, deficits may reach record heights.
All of this is sure to earn Obama some grief from the right--which is why, perhaps, he's gone out of way to make rhetorical nods in their direction over the past two weeks. Naturally, I think Obama is right substantively, but that's another discussion. (You can listen to one part of my argument here.)
Update: More from Ed Kilgore here.
--Jonathan Cohn
6 comments
I love Krugman, but the column to read on the stimulus is Eliot Spitzer's in Slate.
1) Large spending in and of itself won't do *that* much to stimulate the economy. It took World War II to get us out of the great depression, not the new deal.
2) But what the spending can do is set up the next wave of technologies. That's why we need to resist the urge to spend it on old infrastructure and spend it instead on new infrastructure.
- Lymon1
January 8, 2009 at 11:10am
"Large spending in and of itself won't do *that* much to stimulate the economy."
This is kind of disingenious for many reasons, not the least of which is that no one that matters has ever promised that this package would turn the economy around. The point is to break the current cycle, and give companies a chance to start moving forward again. And WWII affected the "economy" in a number of ways, the most important of which were that most able-bodied men were drafted into service and therefore employed by the US Government, and the "reduction" in population, specifically the number of able-bodied men looking for employment afterwards.
"That's why we need to resist the urge to spend it on old infrastructure and spend it instead on new infrastructure."
First, some infrastructure will still be relevant no matter what technology comes rolling down the pike. Second, exactly which technologies are sufficiently developed that they can absorb the workload of the current infrastructure in short enough time that we can stop supporting existing infrastructure? Even the best ideas, like alternative fuels, have shortcomings. Alternative fuels are limited by the ability to produce enough of the fuel to replace existing usage. Any new type of motor, ex electric, would require replacement of existing vehicles in all households effectively overnight; but even if there were enough electric vehicles manufactured, many people could not afford the car note.
Conversely, construction crews doing freeway and bridge maintenance can create tens or hundreds of thousands of jobs in a matter of weeks or months; and those jobs will create more consumers who will generate demand for other goods which will go a long way to reversing the current economic scenario.
In short, I'm not so sure Spitzer is not an imbecile.
- GSpinks
January 8, 2009 at 2:58pm
"the 'reduction' in population, specifically the number of able-bodied men looking for employment afterwards."
History records that one benefit of the black plague was the creation of a middle class because of the serious reduction in workers. WWII had the same effect.
Having said that, the stimulus needs to be a combination of immediate spending, foundational spending, and future spending. If people can't spend quickly, we'll only lose more jobs, and therefore less will be spent, in a never ending spiral. Foundational spending is to do things like fix roads, bridges, crumbling water and sewer systems in some of our older cities - I heard an anecdote that said that NY City will not shut off its water system to do inspections because they think the water pressure is the only thing holding the pipes in place - so that we can continue to assume that those things work; this also gets more money into consumer hands via jobs that can only be done in America. And then we have to think about the future - which businesses have become lousy at doing the more free we let them run. Different sources of energy, fiber to every home, more spending on education.
- anonevent
January 8, 2009 at 3:40pm
I'm not following GS -- I think people *are* promissing that this kind of spending will turn the economy around. As your post points out, the spending is directed towards immediate job creation. If the idea was to reverse the credit crunch one might just as well target the money directly at lenders, or alternatively focus on what Thomas Friedman suggests (auditing the banks so that there is certainty to how much bad debt is out there and then write it off so the credit spigots turn on again).
Also, I don't think Spitzer was calling for an immediate change in infrastructure technologies but using the money to *position* us to change to those technolgies (one thing he touts is a "smart grid" so that more electrical needs can be met with off-peak energy).
The key question here is how much bang for our buck are we going to get for recession spending? Make-work spending doesn't seem to provide that much relief from the recession but does saddle us and the next generations with debt. If we really needed a *quantum* increase in bridge maintanance funding (beyond what came after the Minnesota tragedy) I think we'd have seen more evidence of it -- I fear that a legitimate need for increases in "traditional" infrastructure spending is being used as an excuse for a lot of unecessary spending (and probably a good deal of pork).
- Lymon1
January 8, 2009 at 3:49pm
P.S. I'm all for a domestic draft -- sop up those young men and women and let them pave some roads all you want!
- Lymon1
January 8, 2009 at 3:52pm
Agreed, anon.
"I think people *are* promissing that this kind of spending will turn the economy around"
That may be the key issue here, because I've never heard it suggested that it would; the closest thing I've heard is naysers and harbingers like Eliot warning that it would not.
"...using the money to *position* us to change to those technolgies "
First off, his plan amounts to making electricity cost prohibitive. Second, the smart grid is simply a waste, because their is no gain between using a smart grid and just jacking up the price on all juice consumed. In either case, the resolution for consumers is the same: become more energy efficient or pay a fad wad of an electric bill.
"Make-work spending doesn't seem to provide that much relief from the recession but does saddle us and the next generations with debt"
It doesn't provide ANY relief from the recession, but it does reestablish viable consumers whose purchasing power and demands will counteract market momentum signficantly. :)
- GSpinks
January 8, 2009 at 6:38pm