- Last Updated on Wednesday, 04 February 2009 18:01
- Published on Wednesday, 04 February 2009 18:01
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The only way to describe our current economic situation is as a modestly controlled panic. The numbers do most of the speaking. Unemployment in December was 7.2%, announcements by large companies of potential layoffs reached over 100 thousand last week alone, and many expect the number out of work to be substantially higher in February and March. It’s even possible, though I hope not, that the jobless rate could hit 10%. If so that would be the worst unemployment data since 1940. At the same time the Gross Domestic Product data isn’t good either. By the standard definition, namely two quarters, back to back that show a contraction, we’ve been in a recession for months now. However, the revised data for the fourth quarter of 2008 showed a drop of 3.8%. If you factor out the gains brought about by exports the number is closer to 5%.
But there is more going on than just a run of the mill recession. These recent numbers have all pushed the credit crisis, some would argue, the driving force behind this recession into the background. But, it’s still there. Banks are showing enormous losses, their asset values have dried up, and no one seems to have a grasp on just how much bad debt is out there. In trying to stem the bleeding the Department of the Treasury has already used up half of its bailout money. Originally Treasury’s plan was to buy bad assets and get them off the books. However, once they realized that this was just too hard, they turned to buying bank stock as a means to improve the capitalization for individual banks. It’s hard to tell whether it’s helped or not. The banks, in a sense, as the government owns more and more of their stock, are becoming nationalized, and the Treasury and the Administration want the other half of the bailout money to keep the process going.
All of this has created a crisis mentality. Washington and the new President want to do something. They sense, rightly, that the current economic crisis could be the first step in a much deeper contraction. That’s the argument behind the stimulus bill. The President, who began working on this before he was inaugurated, is pushing this $819 billion bill as a way to jump start the economy while at the same time making some needed investments in infrastructure, research, and education.
It’s appealing, but it’s also an incredibly huge amount of money. This is an expenditure that’s on top of a nearly $1 trillion deficit President Obama inherited from President Bush and the $700 billion financial bailout that the Congress approved last year. Added together this will put all other examples of deficit spending to shame. All told, the national debt, which just thirty years ago was below a trillion dollars, will likely reach or exceed $12 trillion.
The bill, no matter what the GOP says or does, is likely to pass. The President has the votes and the measure is popular with the country. Even a majority of GOP governors are supporting it.
But the question remains, will this bill do any good? That’s really hard to say. Is it an investment in job creating enterprises? Is it a broad investment in American infrastructure? Or, is it just a collection of favorite causes and projects? The answer is that it’s probably all three.
The current bill, passed by the House and headed for the Senate, is so big, with so many pieces, that it’s unusually hard to analyze. According to the House Appropriations Committee there is $275 billion for tax cuts. There is $90 billion for infrastructure, with roughly $30 billion of that for roads and bridges. There is $16 billion for expanding research facilities, $79 billion to help school districts that have been hard hit by the recession, $16 billion for the construction of education facilities, and $54 billion for renewable energy investments. Mixed in with this menu of new projects and programs is $130 billion to help the unemployed, $87 billion for Medicaid, $6 billion to build broadband networks, and a billion for veterans health care.
It’s a massive bill, and the numbers are staggering, but some of the thinking is that this massive infusion of funds could have an immediate impact on confidence, stemming the downward slide, while at the same time, promoting long term competitiveness and productivity.
To many, the Republicans included, it’s just a lot of spending and in the House, to a member, the GOP voted against it. Needless to say, some of their concerns might be justified. It’s a big bill, maybe too large and too diverse, with too much spending that doesn’t hit at the heart of the problem. However, at the same time, the current economic downturn isn’t like anything most of us have experienced. It feels like a meltdown, and President Obama isn’t anxious to follow in the shoes of Herbert Hoover and just watch while the situation deteriorates. This bill is a bit of a gamble. It may, or may not work. But right now, to borrow a phrase from Franklin Roosevelt, “one thing is for sure…we have to do something.”