Voodoo economics or shrewd politics?
By Syd Goldsmith, Special to The China Post Friday, January 16, 2009, 10:21 am TWN
In his first formal speech as U.S. President-elect, Barack Obama unveiled his stimulus plan at George Mason University on Jan. 8. He called for its quick Congressional passage, warning delay could mean "our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."
His call was met by complaints from Republicans and Democrats alike. Ever cool and collected, Mr. Obama responded that the legislators are merely doing their job. In these months of crisis since his election he has shown a remarkable ability to be both presidential and collegial. He followed up in his weekly radio address, telling Americans that his and the vice president-elect's top economic advisors had evaluated his plan and concluded it would create four million new jobs.
The stimulus package shows the hallmarks of both Keynesian economics and Republican tax-cutting politics.
At the height of the Great Depression, on Dec. 31, 1933, the eminent British economist, John Maynard Keynes, wrote President Roosevelt an open letter advising "a large volume of loan-expenditures under government auspices ... preference should be given to those which can be made to mature quickly on a large scale, as for example the rehabilitation of the physical condition of the railroads. The object is to start the ball rolling. The United States is ready to roll towards prosperity, if a good hard shove can be given in the next six months."
Mr. Obama did not mention railroads, but his proposals touched on very broad sectors of the U.S. economy and politics, highlighting tax breaks as well as investment to propel that good hard shove. The President-elect hopes to:
-double the production of alternative energy within three years
-modernize 75% of federal buildings and improve the energy efficiency of two million homes
-computerize medical records within five years
-expand broadband across the country
-create jobs building solar panels and wind turbines, constructing fuel-efficient cars and buildings; and developing the new energy technologies.
-equip tens of thousands of schools, community colleges, and public universities with 21st century classrooms, labs, libraries, new computers, new technology, and new training for teachers.
-start building a new smart national electric grid
-extend unemployment benefits and help struggling states maintain essential services like police, fire, education, and health care.
On top of all this is the most specific proposal of all; to get people spending again, 95% of working families will receive a US$1,000 tax cut. Plans also call for a tax break of US$3000 to American companies for each new job created. Mr. Obama didn't specify costs, but they are estimated at around US$300 billion for the tax cuts and nearly US$800 billion for the total package.
Conservatives are complaining that this promises huge budget deficits and crushing national debt. But this year's Nobel laureate in economics, Paul Krugman, argues the Obama plan costs far too little to overcome an economy in desperation.
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