However, everyone knows that $100 billion is a drop in the bucket compared to the hole the U.S. economy is in. Last spring’s $150 billion stimulus, which came in the form of tax rebates, did little to improve the economy, which was not nearly in such bad shape than as it is now. The reason for the modest size of the current plans is that the Obama team’s real economic decisions still lie ahead.
Arthur MacEwan, U. Mass professor and author of the “Dr. Dollar” column in Dollars and Sense , pointed in a talk last night to the confusions already being spread in the mainstream media about the economic options open to the new administration. With a trillion dollar budget deficit already expected in 2009 due to the Wall Street bailout on top of the Bush tax cuts and war spending, can Obama carry through on his campaign promises to expand health care, education, green energy, and cut the taxes on the working class? MacEwan pointed out that these projects will stimulate the economy as much or more than the short-term spending usually included in so-called stimulus packages.
When Wall Street needs a bailout, the government quickly found $85 billion for AIG, $200 billion for Fannie Mae, and $750 billion for the banks. But when the people’s needs call for spending, the conventional wisdom counterposes long-term economic improvement projects to anti-recession spending.
In fact, mainstream economists have often acknowledged that so-called stimulus spending is often ineffective. It may come too late to impact the recession, or people may save it or use it pay off debts rather than spend it, as was the case this spring. The same is true for the bank bailout, much of which is being spent on multi-million bonuses for executives and on acquiring smaller banks, rather than on new lending as promised by the bailout’s promoters.
The most effective thing the government can do to improve the economy, as MacEwan pointed out, is to provide support for the working class. Education and job training, health care, housing programs, infrastructure projects, retooling the energy sector, and increases in the minimum wage, can be enacted fast enough to have an impact in 2009. They will also bring permanent benefits by reducing inequality and strengthening the class which underpins consumption in the economy – the working class. Even a mainstream economist should be able to get behind that. Obama reaffirmed support for several of these projects in his press conference. However, the candidates being mentioned for Treasury secretary, Sommers, Volker, and Geithner, are not likely to agree. Judging from their records, they will support only temporary deficit spending and not long-term commitments, and they will increasingly emphasize deficit hawkishness in opposition to Obama's program if and when the recession appears to bottom out.
The government acquired an ownership stake in the banks during the bailout, but Treasury Sec. Paulson promised not to use it, specifying the stock cannot be voted. The Obama administration can reverse this policy, take the seats on the boards which the taxpayer money entitles it to, and direct Wall Street to invest in the long-term projects that Obama says he supports. Similarly, as part of the auto industry bailout which is coming, the government should take an ownership share in the auto companies. It can then directly supervise the long-term investments needed to make fundamental improvements in the economy. In addition to getting a better economic result, use of the economic instruments the taxpayers have paid for will begin to change the ideological climate and begin to prove that free-market fundamentalism is not the only long term route to prosperity.
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