Forecast 2009 Part 3 President Obama and the Stimulus Package
January 12th, 2009
It is interesting that central to the U.S. view of the global economy is the inauguration of President Obama and the passage of a historic stimulus package by Congress. Given that the world is awash in economic fear the potential for hope and a sense of direction has been hard to find. Since the current economic meltdown is something we want to change, and since that word has been synonymous with Obama, there is a lot of hope for a good start to his Presidency, and in his stated desire for a $1 trillion dollar stimulus package over the next two years.
As all prognosticators look ahead to this new year, it is clear that the place to look for our financial future for the next couple of years is Washington, not New York .
Politicians of both parties and most U.S. citizens are so scared or nervous about the economy melting down even further that there seems to be wide support for the Federal Government to spend whatever is necessary to get us out of this mess before it becomes even more catastrophic. I find it interesting that economists of all stripes have come together is a loose consensus that the way out of this dangerous economic situation is massive spending by the government. I certainly don’t disagree, but I have significant reservations about what Congress will pass and President Obama will ultimately sign.
The position here is that if the U.S., and therefore to a great degree the global economy is to exit this great recession before the end of 2009 the stimulus package must be a uniquely crafted effort. There are a number of dynamics that must be considered.
Speed If the stimulus package is to have any benefit in 2009, it must not only have a significant part of it passed in the first quarter, but that part must be deployed toward an immediate use of funds for job creation in the short term. Of course there is much work to be done on the traditional infrastructure type of projects. Much of this can be deployed at the state and local level, giving federal funds for major projects that are ready to go but lack funding. Of course the old adage that haste makes waste is never more applicable than when politicians fund massive projects quickly. The country cannot afford to waste money on traditional earmarks and pork barrel projects. How to do this fast and intelligently is a major issue.
Transformation not Recovery. As stated here in the last two columns, we are in a transition between the Information Age and the Shift Age which means, ultimately a transformation to a new order, a new type of economy and a new vision. What is lost can not be recovered. The stimulus package should not be about just reversing the massive contraction into expansion but also about laying the ground work for new infrastructure and innovation, one that will set the stage for the transformative economy to come. Such things as an infrastructure for the 21st century, focusing on high speed connectivity, a national electrical grid, and transfer and storage of renewable sources of energy must be included if this huge investment is to have any long term effect.
The issue with this of course is that this will take years to put in place and will not be part of a quick fix. However it is essential that a long term focus on the future economy of the U.S. must be addressed. Innovation, promising new technologies and the development of IP related to technology and energy technology are America’s future and the future source of millions of jobs. While this investment may not affect economic metrics in 2009 and even to a degree 2010, it is essential for the future of the country. An intelligent and future oriented balance must be struck.
Funding The need for the U.S. to sell hundreds of billions of bonds to fund this stimulus package comes at a time when the usual buyers are becoming much more reticent. China will need to keep its capital at home more than in recent years to deal with its own economic slow down. Saudi Arabia will need to monitor its investments given the collapse of oil prices. This will mean that the U.S. Treasury may well have to offer higher than desired rates of interest to obtain the money. This of course will put a long term pressure on both inflation and on our national debt and financial obligations which is fast approaching $58 trillion. If we are going to significantly add to this unprecedented mountain of debt, we must invest wisely. To not do so will just add to the economic probability of worse economic collapses in the future.
Oversight This is extremely important. If this once in a lifetime stimulus package is not closely managed, highly transparent and constantly being recalibrated, then the U.S. may well be stimulating itself into a rapid national decline. Just look at what has happened to the TARP program where some $300 billion has been spend, with things only getting worse and the banks given the money refusing to lend or support business who need the funds for growth. The entire debt and credit economy on which the country lived for the last three decades is being cleansed and it will not come back for several years.
Tax cuts. While it is always a politicians dream to give tax cuts, at this time it will have much less stimulus affect than ever before. Simply put, most Americans will take any tax cut to pay down debt, get caught up on mortgage payments and save for college and retirement. After having lost jobs, having savings eviscerated and lost hope of retiring soon, tax cuts will not, as in the past, go for new bright shiny objects.
The short term economic health of the U.S. depends upon a speedy passage of an intelligent stimulus package. The longer term economic health of the country can be greatly aided by a vision oriented stimulus or investment package that lays the foundation for the innovation based, renewable energy, ever more connected American economy of the future. This, in the long run, will be the greatest contribution to a bright future for the country and will also provide the greatest economic benefit and greatest number of jobs.
Let us all hope that the 2009 stimulus package does not look back to 20th century institutions, models and ways of doing business and try to recover them. Instead let us see a commitment to the future, to the millions of jobs and hundreds of billions of wealth that will be created by looking ahead and investing in a 21st century vision of what can and will be the source of a long term economic prosperity.
January 13th, 2009 at 6:42 pm
I graduated from the University of New Hampshire in 1992 with a BA Degree in Political Science and a minor in Economics.
I ran for United States Senate in 2002.
The federal government might not want individuals and businesses to pay the social security tax for the next 2 years on wages below $30,000 a year. People may have more money to spend, many individuals may reduce their debts, many businesses may reduce their debts and be better able to stay in business, many businesses may fire fewer people, and many small businesses may hire more people.
If businesses do not have to contribute to social security in the future, many businesses may fire fewer people, hire more people, increase the wages of many people, and increase dividends.
Congress may want to pass a 2 percent national sales tax that is placed on most items other than food, shelter, health care, and education. If a national sale tax is adopted, the federal income tax on individuals and businesses should be reduced at the same time. Some of the money taken in from a national sales tax should be used to fund Social Security and Medicare. A national sales tax may tax some of the money being earned in our underground economy by illegal immigrants and others.
The federal government may want to sell a lot of the land it owns to raise capital, reduce the national debt, help fund Social Security and Medicare, help fund infrastructure, help fund energy transmission, help fund energy development, help fund buses within cities, help fund buses between cities, help fund passenger rail, and do other things. Some of the money the federal government takes in from the sale of the lands should go to state governments. I expect many individuals and businesses from our country and other countries to buy some of the lands. Local governments may obtain more property taxes from some of the lands.
The less the federal government taxes individuals and businesses the higher the taxes that state governments may have on individuals and businesses.
The federal government should stop taxing interest from savings accounts, dividends, capital gains, and estates. Americans and foreigners may be more likely to invest in our country. Individuals and businesses may have more money to spend. Businesses especially small businesses may have an easier time obtaining loans and investments for hiring workers, research and development, and plant and equipment. Wealthy people and others may be more willing to donate money to homeless shelters, soup kitchens, and food pantries. Many middle class people, union members, and government employees who have mutual funds would benefit from capital gains and dividends not being taxed. If the economy grows a lot, state governments may obtain more money from sales taxes and income taxes.
I discuss funding Social Security and Medicare in greater detail on different parts of my website http://www.myspace.com/kennethstremsky
I have posted comments after several columns on newgeography.com which you may read by going to http://www.newgeography.com/users/kenstremsky
January 18th, 2009 at 5:58 pm
Problems I see with the above post are: (1) this guy writes like an economist stuck on growth models–they don’t work on a finite planet; (2) most alternative energy are just fossil fuel extenders, i.e., they depend upon FF for parts and maintenance; (3) money creation, assuming our lenders will even allow more, will ultimately lead to inflation. The worst of it is all money, especially fiat money, is a demand on future resources. We need new net energy to continue present lifestyles and human numbers. Without that, we have to change our lifestyles and/or our numbers. Sorry! Have a nice life!
January 20th, 2009 at 12:50 am
Thank you Nader Raider for writing.
Article 1, Section 8 of the United States Constitution says Congress has the power
“To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”
Congress should eliminate the Federal Reserve or veto many of its decisions. If the United States Senate wants a Federal Reserve decision to be vetoed, it should be vetoed. If the United States House of Representatives wants a Federal Reserve decision to be vetoed, it should be vetoed.
Congress should consider backing our currency with gold, silver, and other commodities.
The federal government and state governments should spend more money on buses within cities and buses between cities. If people have an easier time getting to jobs and from jobs via buses, governments may be able to spend less money on food stamps and Medicaid. If fewer families need to have 2nd cars and 3rd cars, they could save money on auto insurance, gas, auto maintenance, and other auto related costs. People who do not need cars could save more money for education, down payments on homes and fixed rate mortages, retirements, and other things. If fewer people use cars, the air may be cleaner. If the air is cleaner, fewer children who have asthma may have to go to emergency rooms and fewer parents may lose time from work to take care of sick children. If bus service within cities and between cities improves in New Hampshire, more businesses might decide to do business in New Hampshire and more tourists from Canada might visit New Hampshire. Our country may use less foreign oil if more people use buses.
I use Manchester Transit Authority which operates the buses in Manchester, New Hampshire. Manchester’s senior citizens, disabled Veterans, shoppers, workers, and others would benefit from evening bus service and Sunday bus service. If restaurants are busier, New Hampshire might obtain more money from its rooms and meals tax. Manchester’s downtown might be busier at night and on Sundays. Manchester Transit Authority buses have plenty of advertising space inside of them. I hope many businesses will advertise inside of Manchester Transit Authority buses. A person may see an ad inside of a bus longer than a person sees an ad in a magazine.
Our governments and businesses should spend more money on passenger rail and freight rail. This may increase tourism, make the air cleaner, reduce our need for foreign oil, and help small farmers ship their products.
Our governments and businesses should be spending a lot more money on solar power, wind power, geothermal power, and ocean wave power. Our governments and businesses need to spend a lot more money on energy transmission.
Our governments and businesses need to spend a lot more money on technologies to increase our drinking water supply from the oceans and rain water.
Our governments need to encourage more manufacturing in our country. Businesses that make products in our country may produce less air pollution, water pollution, and land pollution on our planet than businesses that make products in China. The shorter the distance an item travels from production to final destination the less water pollution and other types of pollution that might take place.