Obama's Economic Stimulus Package: Whose Pump Will It Prime?

| Mon Nov. 24, 2008 1:18 PM PST

"I'm not going to discuss numbers right now," Barack Obama said this morning at his press conference, where he introduced his economic team but held off on providing details of their plans to respond to the deepening recession. In fact, the devil will be in those details. They will be a test of the president-elect's willingness to take bold action, as well as of his basic ideological approach to economics and social justice.

While various experts have projected a stimulus package costing anywhere from $600 billion to $1 trillion, Obama would only say that "we need a big stimulus package." At the same time, he declared, "95 percent of workers will receive a net tax cut," with those earning over $250,000 a year eventually paying "a little bit more." He has also indicated that he may take no immediate action to roll back Bush's tax cuts to the rich, but simply let them expire in 2010. So how will the Obama administration pay for a big stimulus program? For the most part through Keynesian style pump-priming—government spending that increases the huge deficit over the short term, in hopes of reducing it later under a recovered economy. It's the approach taken, most famously, by FDR—the man to whom the Obama is now being compared on a daily basis.

In fact, deficit spending has long been undertaken not only by New Deal Democrats, but by Republicans from Ronald Reagan to George W. Bush. These so-called fiscal conservatives have been only too happy to run up the national debt when it suits their ideological goals, whether they be military buildups or corporate handouts. Obama and his team will need to decide which larger goals their deficit spending will serve—what pumps they want to prime, and how. In particular, will their program to stimulate the economy reject the discredited "trickle down" approach, and address the extremes of wealth and poverty created over the last 30 years?

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Some ideas on this front came earlier this morning from a teleconference by Robert Greenstein, who heads the Center for Budget and Policy Priorities, a Washington-based research group. CPBB has outlined a series of immediate steps to stregthen the social safety net so as to alleviate the downturn's most dire affects on low-income Americans, and at the same time stimulate the economy.

CPBB's proposals include extending unemployment so that it covers more low-income workers: As it stands, only 40 percent of unemployed Americans actually receive any assistance from the government. The Center also advocates an increase in the food stamp program on a temporary basis, and a simple voucher system to provide assistance to renters forced out by foreclosures, who are being largely ignored by programs serving homeowners. Finally, CPBB recommends that the federal government increase the amount of money it pays states to help them shoulder the cost of Medicaid, whose roles are sure to swell as unemployment pushes people off private health insurance. This would be part of a broader aid program to states that are facing serious budget crunches.

CPBB provided a detailed analysis of just how the recession is likely to effect low-income Americans. Without federal help, the situation will be extraordinarily bleak. Forty one states are facing budget deficits. Almost all states are required to balance their budgets, which will leave them with no other choice than to eliminate or make deep cuts to essential social programs, which have already endured decades of cuts. "The safety net is weaker today than it was in previous large recessions," Greenstein said this morning.

Projections show unemployment may reach 9 percent in the coming year. If no federal action is taken, the Center estimates that in that period, the numbers of people in poverty will rise by 7.5 to 10.3 million. (At the time of the 2006 census, 36.5 million people were living in poverty in the United States.) The number of poor children will increase by 2.6 to 3.3 million, and the number of children in deep poverty—at less than half of the federal poverty level--will climb by 1.5 to 2.0 million.

None of CPBB's proposals are the least bit radical. The price tag for these initiatives would be modest relative to the banking bailouts. And as Greenstein and others have pointed out, resources placed in the hands of poor people and those on the brink of poverty are a practical way to stimulate the economy, as well as a compassionate one: Any government funds received by these people are virtually guaranteed to be channeled directly into the economy, since they will be used to purchase basic needs. On the other hand, funds for failing banks and other corporations, as well as tax cuts for the rich, can simply be hoarded, as the last few months have shown.

It remains an open question as to whether Obama and the Democratic leadership will propose such measures, or whether they can find enough support for them even within their own Congressional majority, considering the such conservative elements the Blue Dog Democrats and the adherents of the Democratic Leadership Council. If they fail to do so, however, Obama will soon begin to look less like FDR, and more like Ronald Reagan.

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