One of the things I like most about Barack Obama is he understands the economic crisis we’re in, and he grasps much of what needs to be done.
Plus, he’s not afraid to level with the American people that we need to spend a lot of money—and yes, increase the deficit in the process—if we’re going to escape a depression.
He also understands that the much-ballyhooed private sector is incapable of solving this problem.
As he put it in his big economic speech at George Mason University on Thursday: “At this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and this severe. Only government can break the vicious cycles that are crippling our economy — where a lack of spending leads to lost jobs, which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”
Even rightwing economists like Martin Feldstein acknowledge this fact.
Basically, the private sector has punted.
The banks and investment houses created the crisis first by blowing air into the housing bubble and then by gambling on unregulated derivatives that were all wrapped up in that bubble.
And even after Paulson dropped $300 billion into their laps, they refused to lend and refused to refinance mortgages.
The auto manufacturers crawled to Washington, and the steel companies are on their way.
So we’ve got a credit crisis, a housing crisis, a collapse of manufacturing, rising unemployment, and falling consumer spending, which, in turn, will cause more companies to throw more people out of work. Meanwhile, state governments are in deep holes, too, and are having to cut payrolls.
Obama understands that this “bad situation could become dramatically worse,” and he is wise to urgently call for bold action.
He recognizes the irrationality of a deep recession like this one, where “there are millions of Americans trying to find work, even as, all around the country, there is so much work to be done.”
Many pieces of his “American Recovery and Reinvestment Plan” make a great deal of sense.
Like doubling the production of alternative energy in the next three years.
Like modernizing more than 75% of federal buildings.
Like improving the energy efficiency of two million homes.
Like building solar panels and wind turbines.
Like computerizing America’s medical records.
Like rebuilding the infrastructure.
Like building a new electricity grid.
Like expanding broadband.
Like giving 95% of working families a $1,000 tax cut.
Like extending unemployment and health benefits to those looking for work.
Like helping states avoid harmful budget cuts.
Like stabilizing and repairing the financial system.
Like getting credit flowing to families and businesses.
Like addressing the foreclosure crisis.
Like having transparency about where all this money is going.
How Obama will do some of this remains to be seen, however.
For instance, it’s unclear how he will go about re-regulating the financial system, since he has surrounded himself with people who were intimately involved with deregulating that system.
It’s also unclear how he will address the foreclosure crisis “so we can keep responsible families in their homes”—and how he will differentiate between responsible and irresponsible families.
What’s more, he may be aiming too low by vowing to “save or create at least three million jobs over the next few years,” since the economy lost about 3 million jobs in 2008 alone.
And for some reason, he is insisting that “the overwhelming majority of the jobs will be in the private sector,” when there is much more job security — and union protection — in public sector jobs. Why trust the private sector when it bollixed everything up in the first place?
But at least Obama recognizes a crisis when he sees one.
At least he is fluent enough in economics to understand the essential role that the federal government must play in such a crisis.
And at least he has put on the table several good ideas for ameliorating that crisis.
It’s now up to Congress to get him a recovery bill he can sign — in a hurry.