Obama Stimulus Plan Must End the Bush Doldrums

Soon to be president Barack Obama may be using strong words to describe the state of our nation's economy; but his stimulus plan is coming up short for what's needed to kick the country out of its Bush doldrums. “I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years.” Paul Krugman agrees with Obama's explanation "why the nation needs an extremely aggressive government response to the economic downturn... He’s right. This is the most dangerous economic crisis since the Great Depression, and it could all too easily turn into a prolonged slump." On what he refers to as the Obama Gap, Krugman complains that: "... Mr. Obama’s prescription doesn’t live up to his diagnosis. The economic plan he’s offering isn’t as strong as his language about the economic threat. In fact, it falls well short of what’s needed." Krugman explains: "Bear in mind just how big the U.S. economy is. Given sufficient demand for its output, America would produce more than $30 trillion worth of goods and services over the next two years. But with both consumer spending and business investment plunging, a huge gap is opening up between what the American economy can produce and what it’s able to sell. And the Obama plan is nowhere near big enough to fill this “output gap.” Just this week, Krugman explains: "the Congressional Budget Office came out with its latest analysis of the budget and economic outlook. The budget office says that in the absence of a stimulus plan, the unemployment rate would rise above 9 percent by early 2010, and stay high for years to come. Grim as this projection is, by the way, it’s actually optimistic compared with some independent forecasts. Mr. Obama himself has been saying that without a stimulus plan, the unemployment rate could go into double digits." More precisely, Krugman details the crux of his problem with Obama's plan that: "Even the C.B.O. says, however, that “economic output over the next two years will average 6.8 percent below its potential.” This translates into $2.1 trillion of lost production. “Our economy could fall $1 trillion short of its full capacity,” declared Mr. Obama on Thursday. Well, he was actually understating things. To close a gap of more than $2 trillion — possibly a lot more, if the budget office projections turn out to be too optimistic — Mr. Obama offers a $775 billion plan. And that’s not enough." Of course, Krugman continues: "... fiscal stimulus can sometimes have a “multiplier” effect: In addition to the direct effects of, say, investment in infrastructure on demand, there can be a further indirect effect as higher incomes lead to higher consumer spending. Standard estimates suggest that a dollar of public spending raises G.D.P. by around $1.50. But only about 60 percent of the Obama plan consists of public spending. The rest consists of tax cuts — and many economists are skeptical about how much these tax cuts, especially the tax breaks for business, will actually do to boost spending... The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job." Krugman wants to know: "Why isn’t Mr. Obama trying to do more?" Is the "fear of raising the debt causing Obama's hesitancy because dangers do exist "with large-scale government borrowing — and this week’s C.B.O. report projected a $1.2 trillion deficit for this year. But," Krugman complains; "it would be even more dangerous to fall short in rescuing the economy." Obama did say, Krugman reiterates: “I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years.” And Krugman realizes: "there’s a real risk that we’ll slide into a prolonged, Japanese-style deflationary trap — but the consequences of failing to act adequately aren’t much better." Krugman is truly perplexed and is searching for answers: "Is the plan being limited by a lack of spending opportunities? There are only a limited number of “shovel-ready” public investment projects — that is, projects that can be started quickly enough to help the economy in the near term. But there are other forms of public spending, especially on health care, that could do good while aiding the economy in its hour of need. Or is the plan being limited by political caution? Press reports last month indicated that Obama aides were anxious to keep the final price tag on the plan below the politically sensitive trillion-dollar mark. There also have been suggestions that the plan’s inclusion of large business tax cuts, which add to its cost but will do little for the economy, is an attempt to win Republican votes in Congress." Krugman concludes without determining Obama's hesitancy to act boldly: "Whatever the explanation, the Obama plan just doesn’t look adequate to the economy’s need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy’s potential and its likely performance, and the gap between Mr. Obama’s stern economic rhetoric and his somewhat disappointing economic plan." In addition, Obama seems to be content with just getting the employment rate to cover the 2.5 million jobs lost last year when he should be concentrating on magnifying job production beyond his break even point. Obama has three factions of his own party pushing him in three different directions: conservative Democrats are highly critical of the cost of the stimulus plan; moderate Democrats are paralyzed by the thought of adding to an already huge deficit; and liberal Democrats are seeking a larger stimulus package that pumps more money into the infrastructure work that is sorely needed, pushes us more rapidly toward green energy projects and increases spending for social programs. All the while Republicans are clamoring for tax breaks and incentives to spur on the private sector. Forget the thirty years plus of supply side, deregulatory solutions that "trickle-downed" us all the way into the economic abyss we find ourselves in today. Let the Keynesian approach lead the country to better times. Only the government can currently create the jobs we need to gain economic recovery. By your own admission, time is growing short. Obama is rapidly approaching the time when he must move from trying to listen and consider everyone's differing viewpoints and boldly act to energize the economy from the ground up as he so eloquently phrased during the campaign. He must craft a stimulus package that create jobs; lots of jobs that will raise the spirits of the people hurting the most at the bottom of the economic ladder. Jobs that will raise people's standard of living. Mr. Obama and the Democrats have the backing of the nation to turn the economy around, and they have control of the presidency and the Congress. The time to act is upon us as a nation. Mr. Obama must gather all the eloquence he can muster and give the American people the straight talk they're waiting to hear. Catering to wholly bipartisan initiatives will only slow down and cripple the stimulus. Obama needs to show Americans a grittier edge in his assessments of the economy. He must rise the nation beyond the "output gap" he is allowing to sabotage his stimulus package. Obama's got to get tougher with the politicians and interest groups that stand between him and his ability to give American's what they desperately need! Jobs! Jobs that will pay the people the money the nation needs to rise above the crippling fears caused by the Bush doldrums!