One of my chief concerns is that our leaders in DC do not really understand the nature of this crisis and are therefore going to either perform ineffective actions or, worse, harmful ones.
I have been silently crossing my fingers beneath the table, hoping that Obama’s team would figure out that this crisis is unique and will require some non-status-quo solutions.
Although I titled this "Analyzing the Obama Plan," this is neither a partisan nor political posting, and not even as much a critique of Obama himself as it is an examination of how the DC machinery currently operates. No one person controls much more than a sliver of the overall process and results that emanate from DC.
Now that there’s finally some meat on the plan which we can react to, let’s parse the numbers.
The Obama Plan
Obama's proposal to stimulate the economy includes tax cuts of up to $300 billion -- including $500 for most individuals and $1,000 for couples if one spouse is employed -- as well as more than $100 billion for businesses, an Obama transition official said.The break would be retroactive to Jan. 1, and couples receiving a $1,000 tax cut would begin receiving an extra $40 in twice-monthly paychecks as the government tries to spark more consumer spending. [Edit: This is strangely worded. The plan calls for less taxes to be taken out, not for extra money to be put in. I wonder what happens to people who have opted for zero witholding?]
New federal spending, also aimed at boosting the moribund economy, could push the overall package to the range of $800 billion or so. Some $77 billion would be used to extend unemployment benefits and to subsidize health care for people who have lost their jobs.
Another provision brought to the negotiations by the Obama team would award a one-year tax credit costing $40-50 billion to companies that hire new workers, and would provide other incentives for business investment in new equipment.
The rest would go toward job-creation projects such as roads and bridges and toward long-term goals such as alternative energy programs.
To summarize:
- $800 billion in total
- $300 billion of that for tax cuts, resulting in $40 every two weeks for couples
- Of the remaining $500 billion, $77 billion would go for extended unemployment benefits
- Another $50 billion goes to companies that hire new workers
- This leaves roughly $375 billion, spread over two years, to go towards infrastructure projects and possibly some alternative energy programs
Said another way, less than one tenth the amount promised to a destitute and undeserving financial industry ($8.5 trillion and counting) has been pledged as relief to taxpayers and state infrastructure budgets. I suppose the truest measure of one’s priorities are one’s actions.
Now, as I pointed out in Crash Course Chapter 13: A National Failure to Save, engineering associations have estimated that the repair bill to bring US infrastructure up to first-world standards is more than $2 trillion.
That is, $2 trillion is the bill for repairing what we’ve already got. Getting a new smart grid, or high speed trains, or reconfiguring our public transit systems, or restoring our waterways for ship transit would be entirely above and beyond that number.
Here we might ask ourselves what impact $185 billion each year for two years would realistically provide. Sure, some jobs would be created, and this is a good thing. But my hoped-for infrastructure upgrade looks like little more than a stabilization project.
So I am hard-pressed to see this as a sufficient amount to begin to address our urgent infrastructure needs, especially when I wear my “non-status-quo” hat.
Instead of $800 billion tossed into a somewhat ordinary array of tax cuts, business incentives, and road repair, I was hoping for at least a glimmer of something new.
For starters, a non-status-quo approach would have us begin by admitting that the money lost on the real estate bubble has been hopelessly betrayed into unproductive works. In the words of the boomers themselves (once upon a time): "Man, it’s gone."
Right there is Obama’s first opportunity. Come right out and say, “Man, all that phony wealth, it’s gone!” The truth is, the world was living on borrowed money and borrowed time, and both ran out. We partied way past our bedtime, and now is the time for a restorative rest, not another dose of artificial stimulant.
But DC doesn’t play the game of self-awareness, instead preferring bold actions and big spending.
So let’s play it with them.
Assuming that a massive round of government stimulus money is a foregone conclusion, then we might as well make the most of it and start by creating a set of national priorities.
Right now, as best as I can tell, the national priority is to get people shopping again. For reasons too numerable to mention here, that’s a failed plan. In fact, it’s no plan at all. It’s a reactive tactic. Attempting to reignite the debt-based, consumer model of years past will squander time and money.
My priorities would include creating truly livable communities where work, play, food, and entertainment all existed close to people's homes.
I would pour money into distributed solutions such as localized cogeneration plants,so that the waste heat from electrical generation was not waste at all, but a valuable by-product. Local communities would be more in control of their power and responsible for using it wisely.
I would establish massive grants for innovators and streamline the bureaucratic and corporate barriers to entry that stifle so many creative ideas before they have a chance to flap their wings even once in the public marketplace of ideas. Big corporations are good at some things, but off-the-wall innovation isn’t one of them. Let’s stoke the passions of garage tinkerers everywhere with prize money that would at least rival a winning lottery ticket.
Imagine what $5 billion could do for the permaculture movement. Or $50 billion for residential solar grants (not tax credits). Or $100 billion for applied research into energy efficiency and next-generation battery development. How many of our best and brightest would jump at the chance to put their energy into a national calling to creatively solve our biggest problems?
Any one of these would perk my ears up and make me take notice, because it would imply that somebody, somewhere understood the problems we actually face.
I will keep a close eye on the amount that actually gets directed towards "alternative evergy programs" and the portion of that heading somewhere other than existing ethanol plants in the districts of high-ranking politicians.
What we find in the plan is that families will get an extra $80/month, some bridges will get repainted, some roads resurfaced, and corporations will walk off with another $50 billion if they promise to hire more people.
For now, I reluctantly have to give the new stimulus package low marks for creativity. It is a status quo package with absolutely no surprises, except, possibly, for the amounts being discussed.
It may well soften the blow a little, and tide us over, but I see nothing in there that indicates a fresh round of new opportunities in the offing.
This only serves to confirm my belief that real change has to come from outside the beltway and be resolutely placed in the center of the bargaining table.
That’s where you come in.
This is a companion discussion topic for the original entry at https://peakprosperity.com/analyzing-the-obama-plan-2/