Obama’s Stimulus: Prognosis

Mar 02, 2009 Editorial

Inheriting an economy in the throes of the worse economic collapse since the Great Depression of the 1930’s, US President Barack Obama presented both his specific plan for dealing with that collapse and the budget for the current fiscal year. For the rest of the world, including our dear mudland, the fate of those initiatives are critical, bearing in mind the role that the largest economy in the world plays in the new globalised economic dispensation.

The numbers in both plans are astounding. The first, which we deal with here, has been dubbed a “stimulus plan” geared directly with jump-starting the US economy. The injection of US$787 billion focuses primarily on infrastructure projects, renewable energy developments, and payment to state and local authorities and various tax incentives. This will push the budget deficit to US$1.9 trillion or 8.3 % of GDP. Apart from the fact that most of the anticipated salutary effects will not be felt until 2010, there are deep concerns about the efficacy of those selfsame effects.

This latest stimulus package follows the Paulson US$700 billion Troubled Assets Relief Program (TARP), the Pelosi US$165 billion stimulus package, the US$300 billion housing package, and various other packages (bailouts of Fannie Mae, Freddie Mac, the auto industry, AIG, etc.) all of which did not deliver the promised turnaround. This is not to mention, of course, the massive injections of liquidity by the Fed, pushing interest rates to zero and expanding money supply (M1) by a whopping 37% in the same 2008. To point out that all of these initiatives failed is not to belabour the obvious but to suggest that President Obama’s new plan seems to be cast in the same mould as the others. This is not surprising since the main point-man then and now is the same Chairman of the Fed, Ben Bernanke.

What is common with all the plans, including the present one, is that there is a stubborn refusal of US policy-makers, contrary to what President Obama articulates publicly, to accept that there is no panacea out of the present recession without painful adjustments. Bernanke’s focus on stimulating aggregate demand through loose credit policies that dole out greenbacks to all and sundry created the problems in the first place. The US problems are deeply structural and simply throwing money around will not resolve anything.

Obama’s plan, which is supposed to create 3.5 million jobs, continues to ignore the US’s own recent history that deficit spending just to stimulate demand will just not cut it. To do so is simply to continue to pander to populist sentiments. Such a policy ensures that domestic savings remain very small and even negative, thus vitiating a central premise of the Keynesian economics that is supposed to be the new guiding light. If not from domestic savings, where would the financing of the deficit come from? At present the Americans are still counting on the funds continuing to come from the big foreign reserves accumulated by the Asian exporting nations.

But this choice, however, while ensuring that Americans continue to live beyond their means as domestic consumption expands once again, also ensures that there will be little or no effect on their fiscal deficit. The spending will simply exert its multiplier effect on the economies of the exporting nations – especially China and exporters of commodities – as it has been doing for the past two decades. There might be 3.5 million jobs created, all right – but not in the US.

President Obama will have to reorient the present thrust of his stimulus plan towards a stabilisation programme combined with supply-side policies that focus on improving the competitiveness of the real economy of the US. And this cannot be confined to the rescue of the auto industry simply because General Wesley Clark pointed out that this is necessary for the war effort (tanks, Humvees, trucks, etc).

We hope that in the forthcoming April G-20 meeting President Obama will accept, like other countries in fiscal straits have to, the Financial Sector Assessment Programme (FSAP) run by the IMF (and the World Bank). Maybe, this will point him in the right direction.

Latest News

Obama’s Stimulus: Prognosis

Related

Similar Articles

The Glenn Lall Show|| April, 4th, 2025

Follow on Tik Tok @Glennlall

THE BLUNT OF THE DAY

Sports

‘One Guyana’ 3×3 Quest Basketball opens with local teams in...

GCA, East Coast surge to huge wins

GFF/Concacaf kick off two-day Match Commissioners...

Chase’s Academic outclass Bartica to move...

Three Miles Secondary make clean sweep of Jagan...

National Chess champions off to Trinidad and...

Features/Columnists

Anticipation without preparation

The U.S. “Joining” the Commonwealth: an unreasonable expectation

Access to information should not come to this

Publisher’s Note

Weekend Cartoon

Bridge Watch

Demerara Harbour Bridge

> Berbice Bridge […]

Obama’s Stimulus: Prognosis

Share this:

Related

Similar Articles

The Glenn Lall Show|| April, 4th, 2025

Follow on Tik Tok @Glennlall

THE BLUNT OF THE DAY

Sports

Features/Columnists

Publisher’s Note

Weekend Cartoon

Bridge Watch

Demerara Harbour Bridge

> Berbice Bridge […]