The Obama Plan, Part 1
I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011 – a plan big enough to meet the challenges we face that I intend to sign soon after taking office. We’ll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.
First off, a developed country shouldn't be in need a "two year nationwide effort to jumpstart job creation". When political policy is well designed, not subject to significant uncertainty, and adaptable to economic conditions, job creation tends to happen organically. It's only when policies (and, granted, private sector institutions) are badly screwed up that a country must resort to five year plans and the like.
Second, what the President elect is describing sounds very much like a New Deal redux. Here's a heretical (though not as heretical as it used to be, thanks to some modern day empirical research) news flash -- most New Deal policies didn't do a whole lot of good economically. That doesn't mean that they were completely without value. Many of the projects that took place in those years were enjoyable to (or at least welcomed by) the people who found employment with them. They also provided some lasting benefits to those who enjoy their end results (e.g., national parks, classic ski trails and lodges, etc). The one measure that FDR enacted that truly helped the economy was his repegging of gold's nominal value near its real post-WWI parity. U.S. industrial production and the US. stock market rebounded impressively following that measure. But as his public works projects were piled on, economic performance tended to suffer. Notably, the Dow Jones Industrial average experienced a slight but steady downward trend in the latter part of the 1930s, after its initial recovery from the 1932 lows. From the sounds of it, the Obama plan seems likely to have a similar effect.
Third, all of these programs require financing, which requires existing savings, i.e., money. But almost all sectors of the U.S. economy, including the U.S. government, are already highly leveraged. That situation can only improve through growth in private sector profits and rising employment income. But a sudden and forceful shift in energy sources, induced by government policies, will have a large negative impact on both! Any negative shift in trade policy will have similar effects, and as we recently pointed out, the inwardly focused nature of infrastructure investment -- now a globally prevalent approach to 'fiscal stimulus' -- is somewhat analogous to trade contraction. The only way that such ambitious public spending plans can be financed at the moment is through policy measures that will eventually prove inflationary.
What's important in this crisis is to recognize that the 'Keynesian' approaches under consideration, as imperfect as they may be, are best suited to a world of closed, autarkic economies. Today, the world is more integrated than it's ever been, as the recent G-20 summit demonstrated. And yet summit participants are being urged to embark on economic programs that were designed to meet the challenges of a 1930s world. The irony is so thick you could cut it with a knife. The verbal commitments to trade are the most encouraging news to come out of those and subsequent meetings. Hopefully the Obama administration will not do any harm on that front.
More from Obama's speech:
These aren’t just steps to pull ourselves out of this immediate crisis; these are the long-term investments in our economic future that have been ignored for far too long. And they represent an early down payment on the type of reform my Administration will bring to Washington – a government that spends wisely, focuses on what works, and puts the public interest ahead of the same special interests that have come to dominate our politics.
The sentiment here is OK, but the last line, as we interpret it, is disconcerting -- it seems to imply that the public sector should be placed before the private sector, or in other words, that the cart will be filled before feeding the horses (or more accurately, without allowing the horses to graze as much as they will need to before pulling a heavy load). Sticking with that analogy, the cart obviously won't get as far as its drivers hope. Unfortunately, that's a lesson that seems to have to be relearned every generation or so, and we may now be at such a point in history.
But what is not negotiable is the need for immediate action. Right now, there are millions of mothers and fathers who are lying awake at night wondering if next week’s paycheck will cover next month’s bills. There are Americans showing up to work in the morning only to have cleared out their desks by the afternoon. Retirees are watching their life savings disappear and students are seeing their college dreams deferred. These Americans need help, and they need it now.
Powerful stuff, and true enough for a lot of people. But the Obama economic recovery plan, as we envision it based on this speech, won't do much for the typical stock fund in people's retirement plans.
The survival of the American Dream for over two centuries is not only a testament to its enduring power, but to the great effort, sacrifice, and courage of the American people. It has thrived because in our darkest hours, we have risen above the smallness of our divisions to forge a path towards a new and brighter day. We have acted boldly, bravely, and above all, together. That is the chance our new beginning now offers us, and that is the challenge we must rise to in the days to come. It is time to act. As the next President of the United States, I will. Thank you.
Effort, sacrifice, and courage. Nothing about creativity, ingenuity, and talent. Apparently this is going to be an infantry only exercise, which certainly lines up well with the spirit of a five year -- err, two year -- plan. One worst case scenario for the next several years is that the U.S. begins to suffer a talent drain as a result ofbadly designed economic policies; that would be especially damaging given the expected social demands that long term demographic trends are set to impose on the country. And while this is probably an absolutely meaningless observation, we did notice recently that Illinois was one of only a few states to suffer a net loss of population in this decade.
At this point, we don't want to be any harsher than that. President elect Obama has earned the opportunity to lead, and we'll wait for more details to take shape before making a full assessment of his economic plan. For now, we'll close with a pop culture reference that captures our emotional state. In the classic television series The X-Files, agent Fox Mulder had a poster on his wall proclaiming "I Want to Believe", and that's how we feel that way about Obama's presidency -- we truly want him to succeed in righting the ship of state. But at the moment, based on this speech and his recent comments, we're feeling very much like Agent Scully -- skeptical in the extreme.
URLs:
http://change.gov/newsroom/entry/2_5_million_jobs/
