President-elect Barack Obama's Thursday morning speech at George Mason University, in Fairfax, VA, gave the Congress, media, and voters a better sense of where he is going with his stimulus package to be introduced within days. It both encouraged and disappointed, politically and economically. A huge package will be enacted but it no doubt will be revised substantially before it gains final passage around mid-February.
There should be no wringing of hands about possible changes in the package. The democratic process will be working the way it should. A proposal is publicly exposed. The public, financial and economic leaders, and Congressional leaders of both parties will examine it. At outcome will be reached reflecting that examination.
The speech was sober, emphasized the seriousness of the current recession, and did not promise immediate recovery. Some items obviously would have an immediate stimulative impact — most specifically his promised $1,000 tax cut for everyone earning less than $200,000 annually. But others would take longer to be felt and some were outright problematic. The actual allocations from the expected $750 million-$1 trillion proposal were not spelled out. Added to the present projected $1.2 trillion deficit this year, they will set a $2 trillion federal budget deficit record.
Areas for examination:
Taxes. Beyond his campaign-promised personal tax cuts, Obama Thursday outlined no tax cuts which the business and financial communities would readily support. Will Obama propose cuts in general business tax or capital gains rates? These would have general and widespread effect on hiring, expansion, and investment decisions across the economy, but thus far they appear to be missing.
Infrastructure investment. Obama stressed that he expected infrastructure investments to be useful to long-term growth and not "earmarks or pet projects" favored by key congressional leaders. This will be easier said than done. Here at home, will such money go toward the Alaskan Way Viaduct and 520 Bridge, for example, or into boondoggles such as Mayor Greg Nickels' Mercer Project and Seattle streetcar-line expansion? Who at federal level will make that call against the wishes of governors and mayors? The same will be true of decisions about roads, highways, bridges, public buildings, and other items normally considered as public infrastructure.
Energy, health care, education. Obama suggested emphasis on construction of new power grids and broadband lines, as well as bringing public schools up to date technologically. Beyond this, he talked of creating new energy efficiencies through conversions to alternate technologies and of big injections of research money in both the energy and health sectors. Skeptics will question the payoffs of such investments in anything but the truly long term.
Obama wisely stressed, throughout, his determination to assure tight-fisted examination and management of programs undertaken and dollars spent. Republican congressional leaders followed the Obama speech with their own brief statement, generally pledging cooperation but also making clear their intention to give his proposals serious vetting.
Over the next month, the principal concern of everyone involved will be the huge new debt burden which the current crisis, and the new stimulus program, will impose on both government and the private economy over a long period ahead. Two trillion dollars in debt ain't beanbag. Who will finance it? Will the value of the dollar plunge dangerously? The economy presently is flirting with deflation. But will inflation explode when recovery begins?