One thing is evident today: President-elect Barrack Obama is demonstrating about every quality necessary to show the world he has the hutzpah, skills, and political savvy to lead the United States. He has moved swifty and competently to line up a new leadership team for his new administration. He has recognized the weakness of his political enemies (the Republicans) and shown no quarter on his political agenda even as he makes rhetorical overtures about inclusiveness. He has grasped the full sense of the pessimism and uncertainty among the American electorate and seized it as a political opportunity to shape his first 100 days. No where is this as evident in his handling of the US economy. Somehow, with unemployment well below levels of the recession of the early 1980s, and major sectors of the economy showing signs of weakness only in the last two months, Obama has successfully parlayed the current economic slump into a “crisis of historic proportions.” He has taken this recession to create the political capital necessary to implement far reaching federal intervention into the economy that would please FDR’s brain trust. He is going to propose a “vast” economic stimulus package of perhaps $300 billion to “save or create” 2.5 million jobs over the next two years. He is going to bailout US companies with the provision that they tow the federal government line about appropriate investments and labor agreements (including restraints on executive pay and probably more influence for unions). He is going to launch a 10-year initiative to remake the US economy by subsidizing and redirecting American capital to “green jobs” and industries. What is remarkable about these initiatives is not that they are a surprise–everyone one of them was discussed on the campaign trail and usually explicitly outlined in his economic program. No, the remarkable aspect of his economic initiatives is that they rest on a politicallly concocted economic crisis. Few analysts doubt we are in a recession, but recessions are not crises. They are part–and a necessary part–of the business cycle. Moreover, we are far, far away from a depression. Indeed, many analysts such as Thomas Friedman talk about the importance of addressing the psychological aspects of the current climate–economic pessimism, uncertainty on wall street–not the substance of where the economy actually is. Writes Friedman in today’s New York Times column:
Yet, it is obvious that President Bush can’t mobilize the tools to defuse them Ã¢â?¬â?? a massive stimulus program to improve infrastructure and create jobs, a broad-based homeowner initiative to limit foreclosures and stabilize housing prices, and therefore mortgage assets, more capital for bank balance sheets and, most importantly, a huge injection of optimism and confidence that we can and will pull out of this with a new economic team at the helm. The last point is something only a new President Obama can inject. What ails us right now is as much a loss of confidence Ã¢â?¬â?? in our financial system and our leadership Ã¢â?¬â?? as anything else. I have no illusions that Obama’s arrival on the scene will be a magic wand, but it would help.
Just think: a few months ago economists were worried about inflation hopping along at 5.3%, not deflation, which now represents the current rallying cry for federal intervention. By seizing on real crises in the housing market and financial services sectors (the two go together), Obama and his economic advisors have recognized the political usefulness of creating the aura of crisis to implement large chunks of the economic agenda that predated all the crisis talk. The New York Times notes:
Nearly every spending program and tax cut that Mr. Obama proposed during the campaign could well end up in the stimulus package, advisers indicated. For example, Mr. Obama’s proposals to invest in energy alternatives and advanced “green” technologies will most likely be part of the package, rather than proposed later in his administration. In effect, the stimulus will be seen by the Obama administration as “a down payment,” as one adviser put it, on Mr. Obama’s entire domestic platform, allowing him to try to take maximum advantage of the first year of his presidency. Traditionally, the first year is the one in which modern presidents have achieved most of their major victories.
And there is no point in dissenting.
“I know that passing this plan won’t be easy,” Mr. Obama said. “I will need and seek support from Republicans and Democrats, and I’ll be welcome to ideas and suggestions from both sides of the aisle. “But what is not negotiable is the need for immediate action.”
So, the crisis is here, Sen. Obama was elected president, so let’s get on with the program and rally around it. The fact that federal spending hasn’t shown to be an effective way to stimulate the economy is not really important. It’s also a politically clever ploy on the part of Obama. In two years, the economy will likely be out of the recession without his program, yet he can claim the recovery as his own. It will be years before credible economic analysis is completed that can disentangle the effects of normal market adjustments versus the fiscal stimulus. But, at the end of the day, it’s about implementing Obama’s economic agenda not turning around the economy. As his chief of staff recently said: “You don’t ever want a crisis to go to waste.” Additional reporting on the economic stimulus can be found in this article from the Washington Post.