Page 2 of 2 Obama must bet the house
By Julian Delasantellis
Immediately after the legislation's passage in February, Obama proclaimed that
new and preserved jobs would be following upon the bill almost immediately; if
he knew just how slow the process of getting money out of the government to the
people really is, assuming you're not just going to be digging ditches and
filling them in, he probably should have held his tongue. If the Achilles heel
of tax cuts is the people's tendency just to take the new money and either save
it or spend it on Chinese electronics at Wal Mart, for government spending, the
problem is that the government must undertake some very rudimentary security
bona fides, like checking that the intended recipient has either a social
security number and/or pulse, before it lets the money out.
A look at what's going to archetypical Ohio illustrates these
dilemmas. Sure, there's a $935 million appropriation for "Highway Planning and
Construction", but there's also $1.143 billion to close the holes in Ohio's
state deficit, as well as lines far more evocative of traditional "Great
Society" themed initiatives such as Pell college grants, "Section 8" rental
assistance, independent living assistance to the disabled, grants to fight
domestic violence, and many more.
What these all are, of course, is the modern day version of Keynes's ditch
digging initiatives - valuable mostly for the money they can immediately inject
into a starving economy. However, for the people, first in Ohio, and then in
the rest of America, they're seeing it very differently. Ohio voters, having
just flipped from having voted Republican Red to Democratic Blue for the first
time since 1996, saw their choice, who had promised them a new Democratic
future different from the discredited big-city interest group politics of the
past, acting very much like those bad old pols of the past, and Obama's poll
approval ratings, in both Ohio and nationwide, are starting to fade as a
result.
What the Ohio numbers really illustrate is just how hard it is to find those
key, infrastructure projects said to be "shovel ready", just waiting for a big
government check to get moving. In Ohio, that ratio is currently $935 billion
highway spending over $7.9 billion total ARRA spending, about 11%. The other
89% of spending the people feel very ambiguous about.
It was unease over the debt involved in funding the stimulus package that
created and animated the "teabag movement" that has essentially united the
Republican opposition. For the most part, the public has come around to see the
stimulus package as not much more than just another hated "bailout" of a
financial institution. These days, it is not at all uncommon to hear radio
advertisements from merchants offering potential customers "your bailout", a
free dessert or entree offered by a restaurant in place of the "bailout" the
government cared not enough to give the people.
All this would be the proverbial tempest in a teapot should the economy soon
recover; Americans will gladly adopt any ideology that appears to be winning.
Obamanomics is not winning; the economy is still contracting, and calls are
heard for a second stimulus.
In a speech in Singapore, Laura D'Andrea Tyson, chairman of the Council of
Economic Advisors under president Bill Clinton, and currently an advisor to
Obama, made the case for a second stimulus:
The US should consider
drafting a second stimulus package focusing on infrastructure projects because
the $787 billion approved in February was a bit too small. The current plan
will have a positive effect, but the real economy is a sicker patient. The
package will have a more pronounced impact in the third and fourth quarters.
Many observers at the time opined that the original package was too small, but
the political compromise that slimmed the package down in exchange for three
Senate votes was swallowed down as just bitter political medicine. The most
remarkable aspect of Tyson's policy advocacy is her arguing for more
infrastructure spending in stimulus mark two. As I demonstrated with the case
of Ohio, if there were so many infrastructure projects that needed to be
immediately funded, they wouldn't currently be making up only 11% of stimulus
mark one.
For Obama, the risks at this point are mind boggling. Any advocacy of stimulus
two would invariably have the media declaring stimulus one a failure; and
politicians in swaggering, cocksure 21st century America just don't "do"
failure.
Even before any official position is taken on stimulus two, Treasury Secretary
Geithner was rather pointedly asked by Republican Representative Bill Posey of
Florida at a Congressional hearing last week: "I was just wondering, where do
you think your plan went wrong?"
A perception of Obama as no longer divine, but just another flesh-and-blood
mortal human, would also not help with his current travails in getting his
healthcare and global-warming initiatives passed. Also, to imagine that the
solons want another eviscerating stimulus fight on their hands just as the 2010
elections approach is to postulate that there must be American legislators
besides Republican Senator David Vittter of Louisiana who frequent sadistic
dominatrixes seeking punishment.
Late last week, another discouraging word was heard regarding stimulus two,
from economist Mohamed El-Erian, head of the bond trading house PIMCO.
Can the world economy afford it? In a post on the Financial Times's
"Alphaville" blog, El-Erian noted that:
The attractiveness of another
stimulus package is tempered by the realization that the country's fiscal and
debt dynamics have weakened considerably; and the possibility of maintaining
loose monetary policy for a very long time (as a way to stimulate aggregate
demand while, simultaneously, starting to restore fiscal sustainability) could
eventually contaminate both inflationary expectations, as well as the global
status and value of the US dollar.
El-Erian is saying that
government policymakers have been damned lucky to get the markets to swallow
anything and everything that the governments are shoving down the markets'
throat. Next time, their luck may run out - in any event, is it worth taking
the risk?
But Obama, America's young, virile, energetic new president cannot be seen to
be doing nothing, especially if the recovery continues to decline - that would
obviate the very rationale of his presidency.
This entire contest will be fought in the 16 months leading up to the mid-term
congressional elections of 2010; if the Republicans do well there, then you've
probably seen all the change you're going see in an Obama administration. The
Republicans have unified themselves to become a new, theocratic party
worshipping their incarnate deity made flesh, Ronald Reagan. The meme now just
oozing out of the right-wing noise machine has both Obama and Ronald Reagan
entering office amidst economic calamity, but Reagan's upper-income,
private-sector tax cuts worked where Obama's government-sector focused approach
is failing. For an American public that took the college physical education
class elective rather than intermediate economics, that is a powerful argument,
indeed.
As noted by my Asia Times Online colleague Chan Akya, New York Times columnist
Paul Krugman recently advocated that Obama simply tell the American people the
truth - no matter how unpleasant.
"What Mr Obama needs to do is level with the American people. He needs to admit
that he may not have done enough on the first try. He needs to remind the
country that he's trying to steer the country through a severe economic storm,
and that some course adjustments - including, quite possibly, another round of
stimulus - may be necessary. What he needs, in short, is to do for economic
policy what he's already done for race relations and foreign policy - talk to
Americans like adults."
Talk about going down gambling.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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