Friday, May 30, 2008

Obama: It's the economy, stupid!

From January 18th, 2008

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"The time has come to bridge the growing divide between Main Street and Wall Street" - Barack Obama

No, he has not adopted the Clinton 92 slogan. However it is looking more and more likely that the economy will play a key role in the 2008 elections, especially in the likely case that there is a rescission.

However with Bush mumbling about his economic stimulus plan today I thought I would write about Barack Obama's excellent plan that he released on Monday. It would immediately inject $75 billion into the economy in the form of tax cuts and direct spending targeted to working families, seniors, homeowners and the unemployed. The plan also includes $45 billion in reserves that can be injected into the economy quickly in the future if the economy continues to deteriorate. I will talk about the details of the plan and the praise it has gotten so far. So keep reading.


First lets get right into the details. If you want to read the whole plan for your self then you can check it out here. However if you don't want to read through the whole thing here is a summery.

Provide an immediate $250 tax cut for workers and their families.

He believes we should make half of the tax credit, $250 per worker, available immediately in order to quickly get money into the pockets of Americans. This will help maintain consumer spending, strengthen the economy and ease the squeeze so many Americans are currently experiencing. If there is a three-month cumulative decline in employment,Obama believes we should immediately provide the remaining portion of that tax credit, an additional $250 per worker. Stimulus: $35 billion. Additional Reserve: $35 billion.

Provide an immediate, temporary $250 bonus to seniors in their Social Security checks.

Obama is calling for providing middle- and low-income seniors – who would not benefit from the workers’ tax credit – an immediate, one-time $250 supplement to their Social Security benefit. And if there is a three-month cumulative decline in employment an additional temporary supplement of $250 per Social Security beneficiary should be provided. Stimulus: $10 billion. Additional Reserve: $10 billion.

Provide relief to homeowners hit by the housing crisis.

Given the downturn in the economy, Obama is calling for immediate creation of his Foreclosure Prevention Fund that will dramatically increase emergency pre-foreclosure counseling, and will work through the Federal Housing Administration, Fannie Mae and Freddie Mac to allow families facing foreclosure to responsibly refinance their mortgages or sell their homes. Stimulus: $10 billion.

Provide aid to states hardest-hit by the housing crisis to avoid a slash in services.

Barack Obama believes that in the areas hardest-hit by the housing crisis we should provide immediate, temporary funding to state and local governments so that the decline in property values does not cause them to slash critical public services and cut vital infrastructure spending. Obama’s plan will provide $10 billion in immediate relief to the states and localities hardest hit by the housing crisis. Stimulus: $10 billion.

Extend and expand Unemployment Insurance.

Expanding UI is one of the most effective ways to combat economic turmoil; every dollar invested in UI benefits results in $1.73 in economic output. Obama is calling for a temporary expansion of the UI program for those who have exhausted their current eligibility. Obama also believes that the extension of UI benefits should be coupled with an expansion of UI eligibility to more workers, including many part-time and non-traditional workers who are currently left out of the program. Stimulus: $10 billion.

Hope that provides a basic outline of the plan. If not look at the whole thing.

Now let's look at the reactions that this plan has been getting. First off Brad DeLong, professor of economics at the University of California, Berkeley and a former Deputy Assistant Secretary of the United States Department of the Treasury and one of the most prominent economic bloggers on the left who blogs at Grasping Reality with Both Hands. Here is what he had to say about possible lobbyist influence in a stimulus plan and why it matters:

The plan is clean: there is no place for lobbyists to hang ornaments on it--which means that quick passage is possible. The first $45 billion of checks could be cut and sent out with this April's tax refunds.

...

As Stan Collender wrote last Thursday:

"Christmas 2008 May Be Coming Early For Lobbyists | Capital Gains and Games: A tax lobbyist friend told me yesterday that he's gone into the economic stimulus business. In response to my inquiring look that begged for more information, he said that I'd be surprised how many industries and professions have tax reductions that they want in any economic stimulus package that is considered this year and are looking to him to come up with arguments that confirm they will, indeed, be stimulative. In other words, even though it hasn't yet been introduced, the economic stimulus that has become all the rage in Washington these days has already become a Christmas tree with everyone and anyone who has something they want to do trying to reframe that proposal in terms of its positive impact on the economy. In case anyone hasn't noticed, this includes the White House, with the president all but saying that the reason the economy may be slowing is because of uncertainty about whether the tax cuts enacted during his administration will be extended when they expire in 2010. None of this is suprising. Even though its chances of being enacted are small, an economic stimulus bill may be the only thing that actually moves through the legislative process this year. In lobbyist parlance: it may be the only train leaving the station in 2008. But no matter how good the messaging, loading up the bill with a variety of provisions is one of the things most likely to lead to its demise. It will be too big, too political, too expensive, and take far too long to debate and pass."

The best way to keep a stimulus bill from becoming a lobbyist-pleasing ineffective and destructive Christmas tree in which a lot of the money goes to people who won't spend it and a lot more to people who shouldn't get it is to keep the legislative vehicle simple and clean. Boosting employment in the short term by cutting a lot of identical checks by April if we need to is something congress and the IRS can do. And Obama's plan seems to me to have the best chance of doing that--if he can sign Pelosi and Reid up to move a clean, focused bill.

The story about the tax lobbyist really troubles me because I think that's why Bush is getting behind a stimulus now. He has been trying to get his corporate buddies every last treat he can before he gets out of office. And I think now he will try to exploit economic fears to give another big giveaway that will bankrupt us and ultimately do nothing. I'm 14 and I'm going to have a lot of debt to pay when I get older. And a stimulus plan only makes sense if it is giving money back to the American people and doing something to solve the problem. A lobbyist written corporate present won't do that.

Also one of my favorite economists, Robert Reich, has blogged on the subject and came to the same conclusion:

As I've noted several times over the past year, a fiscal stimulus is necessary if the economy is to avoid recession. We may be in recession already. We can't rely soly on monetary policy. A bold fiscal stimulus is necessary, and must be done quickly in order to prevent millions of people from losing their jobs -- and catapulting us into a deeper recession.

What sort of stimulus? Since 80 percent of Americans pay more in payroll taxes than they do in income taxes, and because middle and lower-income people are far more likely to spend whatever tax relief they get than higher-income people, the best stimulus would offset the payroll tax. And the easiest way to do this is through a refundable tax credit, effective as soon as possible. I've looked at what the candidates are offering. Obama's stimulus package seems to me to be the most reasonable. It would give a direct, immediate boost to the economy. In my view, its tax cuts for workers and extra social security payments for seniors offer the fastest and most efficient way to get more purchasing power into the economy.

Unfortunately the leading voices in the wonkosphere, Ezra Klein and Matthew Yglesias have not weighed in yet. But two more traditional econ bloggers have weighed in and say it's a good plan. From reading it it sure seems like a good plan. It's not perfect. No plan is. But we'd be a lot better off if this was enacted.

Hopefully you have learned something from this post and if you appreciate my writing or Obama's plan please send a donation his way via my Obama jar. I would be quite thankful.

Si Se Puede! - Yes We Can!


1 comment:

The Young Sentinel said...

Hi

This is Eyck Freymann from www.youngsentinel.com, a blog like yours. We have several contributors from around the country, including Duncan Hosie of Kids for Change. We have both tried to contact you about a joint blog effort, but I don't know if you've got the emails.

Contact me at eyck@youngsentinel.com.

Obama 2008!