Forecast 2009 Part 3 President Obama and the Stimulus Package
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.
