During his press conference announcing his economic team today, President Elect Obama stress that he is developing an economic plan, and will act on it immediately after taking office.
“Right now, our economy is trapped in a vicious cycle: the turmoil on Wall Street means a new round of belt-tightening for families and businesses on Main Street – and as folks produce less and consume less, that just deepens the problems in our financial markets. These extraordinary stresses on our financial system require extraordinary policy responses. And my Administration will honor the public commitments made by the current Administration to address this crisis,” Obama said.
Obama is going to be hands on when it comes to the economy, “I have asked my economic team to develop recommendations for this plan, and to consult with Congress, the current Administration and the Federal Reserve on immediate economic developments over the next two months. I have requested that they brief me on these matters on a daily basis, and in the coming weeks, I will provide the American people and the incoming Congress with an overview of their initial recommendations. It is my hope that the new Congress will begin work on an aggressive economic recovery plan when they convene in early January so that our Administration can hit the ground running.”
I believe that Obama wants more than the new Congress to work on a plan. He wants his plan passed so that he can sign it shortly after he takes office. Obama is facing a multi-dimensional crisis, so it isn’t a surprise that he is not forthcoming with details today. His plan is focused on stabilizing the markets, home foreclosures, putting money back into people’s pockets, and creating 2.5 million new jobs. Obama believes that job creation is the key to turning this economy around, so this will likely be the primary focus of the plan.
Two things are very clear. The government is going to have to deficit spend, and Obama is going to have to delay his repeal of the Bush tax cuts. No matter what some ideologues may think, we can’t cut our way out of this economic downturn. The fact is that there is an indirect relationship between the demand for government assistance, and economic conditions. In other words, as the economy goes down, demand for programs like food stamps and unemployment goes up. Unless the goal is to have a prolonged recession or even a depression, the government must spend right now.
Obama was not ready to discuss the cost of his stimulus package today, but it is likely to start with another $300-$500 billion on top of the $350 billion leftover from the initial $700 billion bailout. The cost of the entire package will get close to a trillion dollars, but without it government revenue will continue to decline, and the United States would be running the risk of not being able to pay for entitlements for people who desperately need them now more than ever. Once the economy is revived, government revenues will increase, and the deficit will drop. Obama was clear today that putting people back to work is his short term concern, and budget deficits are a long term issue.