But the Economic Recovery Plan proposed Saturday by President-Elect Barack Obama (boy do I like saying that!) is like finding water after wandering in the desert. It's the best idea for addressing this crisis that I've yet seen and it's what we should have done from the start.
Here's the relevant text from Obama's proposal:
I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011 - a plan big enough to meet the challenges we face that I intend to sign soon after taking office. We'll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels, fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.
-- President-Elect Barack Obama, November 23, 2008
Note for grammar geeks only (others please skip this paragraph): I altered the punctuation from the official report because I thought it was wrong. The last sentence in the original transcription read:
We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.
It's a "Brand New Deal". Obama may just be our FDR indeed, just as we all thought. The original argument made last spring against infrastructure spending for stimulus -- that it would take too long to be put into action -- never held much water, but in any event has been conclusively proven wrong by the length and depth of the economic crisis. Projects under construction can be sped up. Projects "on the shelf and ready to go" can break ground. Projects under consideration can be transformed into concrete proposals.
Let's just look at this in terms of rail projects here in California. The State of California just passed a $10 billion bond measure for the construction of a high-speed rail line cutting the trip between San Francisco and Los Angeles to two and a half hours, connecting through San Jose and the Central Valley, with future extensions planned to Sacramento and San Diego. Meanwhile, Santa Clara County just passed a sales tax to fund the extension of BART into San Jose, and Los Angeles County just passed a sales tax to fund, amongst other things, the Subway to the Sea, connecting with scores of other new light rail lines and Rapid bus routes. Two rail major rail lines are already under construction in the city of Los Angeles right now, one to East Los Angeles and the other going west to Santa Monica.
I'm sure there are a thousand other similar scenarios nationwide.
The downside? It basically comes down to deficits and dollars.
Contrary to Dick Cheney, "deficits do matter". The question is when and for what purpose? Running huge deficits during good economic times in order prosecute illegal and unjust wars in distant lands is not a good idea. Increasing government spending on public infrastructure, education and health care in order prevent mass unemployment and suffering during bad economic times is a (very) good idea. It's called Keynesian economics and it pulled our nation out of the Great Depression and into decades of post-war prosperity.
More fundamentally, I disagreed with the Wall Street bailouts for a very capitalist reason: I recognize the importance of Creative Destruction to the proper functioning of the free market system.
If we are to have a successfully functioning capitalist system, failure must be recognized just as much as success. Propping up failed companies with taxpayer dollars is probably the worst use of public funds possible. I think it would actually be unconstitutional under Article XVI of California Constitution:
SEC. 6. The Legislature shall have no power to give or to lend, or to authorize the giving or lending, of the credit of the State . . . in aid of or to any person, association, or corporation . . . or to pledge the credit thereof, in any manner whatever, for the payment of the liabilities of any individual, association, municipal or other corporation whatever; nor shall it have power to make any gift or authorize the making of any gift, of any public money or thing of value to any individual, municipal or other corporation whatever . . . and it shall not have power to authorize the State . . . to subscribe for stock, or to become a stockholder in any corporation whatever . . .
A gift of public funds is public spending on private goods. Public spending on private goods = bad. But, public spending on public goods = good. Public spending on private goods is bad, corrupt, ideologically bankrupt, crony Republicanism. Obama's proposal is for public spending on public goods, i.e. public infrastructure, public education, public health.
OK, maybe some of these funds will go to support private initiatives in areas like alternative energy, universal health care, fighting climate change. The federal government can at very least direct its own purchasing efforts in ways that support the development of such initiatives. But supporting new private companies struggling to help our nation achieve broader social goals is fundamentally different than throwing money at failing, outdated enterprises with little redeeming social value.
We are all racking up huge deficits. Already, over $8.5 trillion in commitments have been made. There is a very real risk that bigger deficits will lead to higher interest rates on our debts and overburden our children and grandchildren with too much debt. Even the most hard-core deficit hawks, however, recognize that it is better to run deficits than suffer a depression, and the issue of intergenerational justice can be solved by making smart investments in our common future.
The value of the dollar may diminish in relative terms internationally, but that may not be a bad thing.
First off, the value of the dollar-denominated debts that have overburdened not only the federal government, but our entire society will be reduced in absolute terms.
More importantly, however, a depressed currency acts as a massive subsidy to homegrown industry and tax on foreign imports. There are a number of key American industries that would absolutely benefit from a lower dollar value: agricultural exports, Hollywood, almost all kinds of manufacturing starting with Detroit, tourism. A lower dollar may mean more jobs and higher wages.
China by way of example has been deliberately depressing the value of the yuan as a matter of state policy for the past decade at least.
Our largest vulnerability in terms of a reduced dollar is probably our thirst for petroleum and other sources of imported energy. The cost of oil will go back up again, particularly as measured in dollar terms. The flip side is that a reduction in the relative value of the dollar may also expedite our transition to alternative energy technologies.
But no matter. It is likely that we can make tough choices about printing dollars at another point in time. Right now, we are a long, long ways away from paying for federal expenses with printed dollars. Short-term interest rates on U.S. Treasury bonds are effectively zero. People all over the world are willing to give us their money for free on the promise that it will be returned. Even long-term rates are at historic lows. The dollar has actually been rising, even as this crisis has unfolded. The price of oil has plummeted.
The only real risk IMHO is that the negative effects of too much spending might come suddenly instead of gradually, leaving us without an opportunity to respond. But the chances of that being the case seem much smaller at this point than the chances of us otherwise continuing to sink further and further into economic ruin and even if it doesn't work at all in terms of spurring on new economic activity, much of what will be built will be public goods in and of themselves. More high-speed rail and transit, repaired roads and bridges, better schools and hospitals, improved energy efficiency, those are all good things in and of themselves. The money won't have been "wasted", although it should be spent as efficiently and effectively as possible.
But in all likelihood, it will work. Millions of new workers will circulate their earnings through local economies. There will also be billions in contracting opportunities, millions of spin-off jobs and businesses.
You would be surprised just how far federal spending can go in sustaining entire communities. Go visit Los Alamos County, NM, the richest county in America. Los Alamos has had only one major employer for all of its 65+ years in existence: the federally-funded Las Alamos National Laboratory, the birthplace of the atomic bomb.
Silicon Valley didn't spring up out of the fertile California soil by accident. There were massive federal contacts for military and space-related technologies being fulfilled at places such as Moffett Field in Mountain View.
The biggest challenge is to make sure that the projects to be funded are smart projects that will be wise investments in our future. It's too late in the game ecologically for us to build 20 Century "white elephants". Decisions need to be made quickly, but with the input from those who know what will work best on the ground. We the people need to stay active in order to make sure that these dollars are directed toward their "highest and best" uses. Obama has taken up the gauntlet of a "Brand New Deal". It's up to us to help make it successful.
