Stimulus for the Long Run

NDN: Economic Recovery Package Signals New Priorities, Development of a 21st Century Economy

NDN today released this statement applauding the draft economic recovery and reinvestment package:

NDN: ECONOMIC RECOVERY PROPOSAL SIGNALS CHANGED PRIORITIES, ACCELERATES DEVELOPMENT OF A 21ST CENTURY ECONOMY

"President-elect Obama has made clear that this proposal should not only create more jobs, but do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure," said Dr. Robert Shapiro, the Chair of NDN’s Globalization Initiative. "Investments in this 21st century economic infrastructure, such as increased broadband access, computers in schools, health information technology and provisions to green the federal government, are critical to increasing demand for the important technologies and skills that will in turn expand the nation’s capacity for innovation and economic growth."

NDN President Simon Rosenberg praised both the recovery package and President-elect Obama’s commitment to use TARP funds to help keep people in their homes.

"For years, NDN has argued that the central economic issue of our time has been the stagnating wages and incomes of everyday Americans, which led directly to the overleveraging of Americans' largest assets: their homes," Rosenberg said. "By pledging to use TARP funds to keep people in their homes, using part of the recovery package to stabilize the housing market, which is the root cause of the financial crisis, and targeting investments to create long-term prosperity, President-elect Barack Obama and the Congress have made a crucial commitment to focus America’s economic strategy on the well-being of everyday people."

"The new prominence of critical investments in clean technology and clean infrastructure in this package rightly shows that clean energy is no longer a marginal topic and now sits at the heart of America’s economic strategy," said Michael Moynihan, the Director of NDN’s Green Project, who has long argued for clean infrastructure investment. "The inclusion of $32 billion in clean technology investments at the center of this package is not only vital to addressing our short term crisis but also has the potential to power the next great wave of prosperity."

For more of NDN's work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure, please see NDN's backgrounder on Economic Recovery:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

Green Stimulus May Include Clean Infrastructure Bank

The Washington Post's Steven Mufson today looks at the energy provisions that may be included in the economic recovery plan being offered by President-elect Barack Obama. This clean infrastructure rich green stimulus package will reportedly include $25 billion in energy related tax credits, including a two year extension of the Production Tax Credit.

The legislation may also end up including a bank to finance energy infrastructure, an idea NDN has been advocating. From the article:

The stimulus package may also establish a federally funded National Clean Energy Lending Authority, an idea that has been promoted by Rep. Chris Van Hollen (D-Md.) and Rep. Zach Wamp (R-Tenn.). The agency would receive as much as $10 billion to $20 billion and would extend low-interest loans or loan guarantees to renewable energy projects in an effort to mobilize private capital. If successful, Van Hollen said, the agency could become self-sustaining.

The pair also proposed the establishment of a revolving fund to help finance energy-efficiency improvements by homeowners.

The two lawmakers have written to Obama and have discussed their proposal for a "green bank" with Obama's choice for chief of staff, Rahm Emanuel, and economic adviser Lawrence Summers.

"The idea is gaining traction," Van Hollen said. "It fills an essential gap right now."

As Congressman Van Hollen points out, a clean infrastructure bank is incredibly important right now, as the credit necessary for many renewable energy and clean infrastructure projects dried up in the financial meltdown. Without a way to finance these projects, tax credits alone may not have the stimulative effect that one would like.

For more on clean infrastructure and green stimulus, attend NDN's upcoming event Clean Infrastructure: Transportation Policy for the 21st Century with U.S. Rep. Earl Blumenauer, read the NDN economic backgrounder and read Melissa Merz's blog about President-elect Barack Obama's most recent weekly YouTube address.

Times Offers Excellent Analysis of the Emerging Economic Debate

Edmund Andrews and David Herszenhorn of the New York Times today offer a very good overview of the how the debate over the economy is shaping up.  It begins:

WASHINGTON - The fresh evidence on Friday of the economy's downward spiral focused even more attention on two questions: Is the stimulus package being pushed by President-elect Barack Obama big enough? And will the component parts being assembled by Congress provide the most bang for the buck?

With the Federal Reserve having just about reached the limit of how much it can help the economy with cuts in the interest rate, Washington's ability to end or at least limit the recession depends in large part on the effectiveness of the big package of additional spending and tax cuts that Mr. Obama has made the centerpiece of his agenda.

And with the economy facing what now seems sure to be the sharpest downturn since the 1930s, the financial system balky and the government facing towering budget deficits, economists and policy makers acknowledge that there is no playbook.

"We have very few good examples to guide us," said William G. Gale, a senior fellow at the Brookings Institution, the liberal-leaning research organization. "I don't know of any convincing evidence that what has been proposed is going to be enough."

In part because Mr. Obama wants and needs bipartisan support, the package is being shaped by political as well as economic imperatives, complicating the process by putting competing ideological approaches into the mix.

It includes $300 billion in temporary tax cuts for individuals and businesses, in part to attract Republican support. It includes a big expansion of safety-net programs like unemployment insurance, which Democrats say makes both economic and social sense. It includes more money for highways, schools and other public infrastructure; more money for "green" energy projects; and more money to help state governments pay for health care and education.

Republicans, as always, are advocating for more and broader tax cuts. But the evidence is ambiguous about whether tax cuts will really spur economic activity at a time when consumers and businesses alike are frozen in fear and reluctant to let go of their money.

The risk is that Mr. Obama and the Congress will weigh down their effort with measures that cost many billions of dollars but may not have much impact on economic activity.

Tax breaks, for example, usually produce less than $1 of stimulus for every dollar they cost, economists say. Spending on public construction projects, like highways and bridges, produces the most economic activity - but there is a limit to how many projects are "shovel-ready," and even those take time to generate jobs and ripple through the economy.

You can read the rest here.  For more on our take on all this you can find many posts from recent weeks on the blog, and be certain to review this recent compilation of our economic writings over the last few years.  Be sure to review what has become one of our more influential works, A Stimulus for the Long Run.

Politics and the Economic Crisis

Barack Obama's historic election as a new, national agent of change will face a daunting test as the economic crisis continues to accelerate, and the political pressures arising from what must now be called “The Great Recession” begin to reshape the response.

The latest evidence is today’s unemployment data: one million jobs lost in two months; the sharpest eight-month rise in the jobless rate since 1945, when tens of millions of soldiers and sailors were demobilized; and losses across every sector and every region. Jobs are in freefall along with the markets, investment, consumer spending and household wealth. And economists are now genuinely frightened by the course the Great Recession is taking, because there’s been nothing like it in anyone’s experience.

That’s why long-time advocates of fiscal probity now call for stimulus topping $1 trillion, and why every spending and tax idea floating around Congress for the last decade is back on the table again. The political pressures and real concerns are so overwhelming that there’s talk of large tax cuts, despite the consensus among economists that when people and businesses are as economically downcast as they are today, tax relief has little stimulus power. That’s not only politics at work; it also reflects a sense of grave foreboding among many of those same economists.

We do need unprecedented stimulus – but all of the stimulus in the world won’t change the course of this crisis until we also address its underlying forces. The wealth of American households and the portfolios of American financial institutions will continue to tank until the housing market stabilizes -- or at least until foreclosure rates return to normal. And the most aggressive, easy policy in our history won’t be enough, and financial institutions won’t begin normal lending again, until they’re more confident that the hundreds of billions of dollars in mortgage-backed securities and other derivatives they still own aren’t headed for the drain as well.

The new Administration can take on these challenges directly, as candidate Obama pledged to do with extraordinary foresight. For example, we can impose a 90-day moratorium on foreclosures and use the time to renegotiate the terms of tens of thousands of distressed mortgages held by Fannie Mae and Freddie Mac. One idea promoted by many economists is to convert those mortgages to 30-year fixed at 5.25 percent, which happens to be long-term mean rate for Fannie and Freddie mortgages. It won’t stop foreclosures, but it should bring down foreclosure rates to near-normal levels, which would do more to stabilize the financial system than the bailouts in the Bush Administration’s own Wall Street version of tsunami stimulus. And some tough love from the new Treasury Secretary could help restart the lending process: having done what we can to stabilize the value of their portfolios, we should consider requiring institutions receiving federal aid to use a real share of that assistance to restart their lending.

We need large-scale stimulus, but it will only work if we first address the underlying problems. Otherwise, 18 months from now, we could be $1 trillion poorer and have little to show for it.

Obama on the Economy and the Stimulus

President-elect Barack Obama gave a major address this morning, in which he spoke to the severity of the economic crisis, and the importance of the stimulus package that he is proposing.  We were very happy with what we heard in the speech-- a few of our favorite quotes are pulled out below.  Below that, you can watch the video of Obama speaking, and if you like, you can read along here.

To finally spark the creation of a clean energy economy, we will double the production of alternative energy in the next three years. We will modernize more than 75 percent of federal buildings and improve the energy efficiency of 2 million American homes, saving consumers and taxpayers billions on our energy bills. In the process, we will put Americans to work in new jobs that pay well and can't be outsourced, jobs building solar panels and wind turbines, constructing fuel-efficient cars and buildings, and developing the new energy technologies that will lead to even more jobs, more savings, and a cleaner, safer planet in the bargain.

To improve the quality of our health care while lowering its cost, we will make the immediate investments necessary to ensure that, within five years, all of America's medical records are computerized. This will cut waste, eliminate red tape, and reduce the need to repeat expensive medical tests.

But it just won't save billions of dollars and thousands of jobs; it will save lives by reducing the deadly but preventable medical errors that pervade our health care system.

To give our children the chance to live out their dreams in a world that's never been more competitive, we will equip tens of thousands of schools, community colleges, and public universities with 21st-century classrooms, labs, and libraries. We'll provide new computers, new technology, and new training for teachers so that students in Chicago and Boston can compete with children in Beijing for the high-tech, high-wage jobs of the future.

To build an economy that can lead this future, we will begin to rebuild America. Yes, we'll put people to work repairing crumbling roads, bridges and schools, by eliminating the backlog of well-planned, worthy, and needed infrastructure projects, but we'll also do more to retrofit America for a global economy. That means updating the way we get our electricity, by starting to build a new smart grid that will save us money, protect our power sources from blackout or attack, and deliver clean, alternative forms of energy to every corner of our nation. It means expanding broadband lines across America so that a small business in a rural town can connect and compete with their counterparts anywhere in the world.

It means investing in the science, research, and technology that will lead to new medical breakthroughs, new discoveries, and entire new industries.

And, finally, this Recovery and Reinvestment Plan will provide immediate relief to states, workers, and families who are bearing the brunt of this recession. To get people spending again, 95 percent of working families will receive a $1,000 tax cut, the first stage of a middle-class tax cut that I promised during the campaign and will include in our next budget.

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Now, this recovery plan alone will not solve all the problems that led us into this crisis. We must also work with the same sense of urgency to stabilize and repair the financial system we all depend on.

That means using our full arsenal of tools to get credit flowing again to families and businesses, while restoring confidence in our markets. It means launching a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes.

It means preventing the catastrophic failure of financial institutions whose collapse could endanger the entire economy, but only with maximum protections for taxpayers and a clear understanding that government support for any company is an extraordinary action that must come with significant restrictions on the firms that receive support.

And it means reforming a weak and outdated regulatory system so that we can better withstand financial shocks and better protect consumers, investors, and businesses from the reckless greed and risk- taking that must never endanger our prosperity again.

Getting the Stimulus Right

The stimulus package, no longer on track for an Inauguration Day signing but still the largest stimulus in modern history, is working its way rapidly through Congress.  The timetable remains so short, and the stimulus so large, that the job before Congress and the skeleton Obama economic team remains huge.  There is still time to get the stimulus right.  But there is also a risk that things may go wrong.  Here are a few thoughts on how to make the largest stimulus in history something we can all be proud of that will live up to its goal of aiding our economy in the short term and the long term.

First, we need to recognize that fiscal spending is messy, and accordingly, requires real effort and supervision.  Not for nothing is it a fiscal tool that is rarely taken out of the shed.

Unlike monetary policy, which is highly virtual and information age -- you flip a switch, the target rate for federal funds, and the economy (ideally) responds -- or tax cuts, which at most involved mailing out a rebate, fiscal spending is very sticks and mortar.  Clean infrastructure stimulus -- vital as it is to our future at this point in our history -- involves truck rolls, deliveries of heavy materials and actually putting shovel to earth.  So far, the debate around fiscal stimulus has resembled the discussion prior to a monetary move -- what should the level of stimulus be, 600, 850 or perhaps a thousand billion.  It must now take equal account of the process by which that number, whatever it is, gets translated into real economic activity.

Second, we need to face up to the fact that this level of stimulus is massive.  For those not used to calculating in twelve digits, $850 billion is 6% of GDP (3% for each of the two years the stimulus will run), about one sixth of the annual budget per year and equal per year to almost all current discretionary spending.  While yesterday, President Elect Obama signaled that a large chunk of the stimulus (about $300 billion) will take the form of a tax cut, reducing the size of the spending package, we are still talking about a massive amount of spending.

This is important because Congress must generally do two things to spend a dollar.  It must first write law to authorize the spending and, second, appropriate money against the law.  The first step, the "how," usually requires years of deliberation.  The second step, the "how much," is easier once the spending authority exists.  To meet the exceptional timeline, lawmakers are now combing previous authorization bills for authority to spend.  However, even allowing that a substantial chunk of the stimulus will go to reimbursing state medicaid expenses -- in essence to state budget relief -- and another chunk to to a middle class tax cut, finding ways to spend this much money is no walk in the park.

For this reason, it is likely that substantial sums will have to go into holding pens of one type or another, where some official, a governor or perhaps a cabinet Secretary, will have the money available to spend once he or he has identified where to spend it.

So what potential holding pens exist?

State block grants are one potential holding pen for money.  With a block grant, the money is sent to governors with light strings attached for them to spend.  There is much to be said for pushing spending decisions as far down the line as possible. 

However, the governors themelves have requested only $180 billion.  Moreover, money dispatched to states risks being used to relieve pressing budget pressure, rather than on projects that create real jobs.  As an example, in the 1990s Icetea legislation, billions that Congress wanted to go into new transportation projects were diverted by governors to covering ordinary transportation overhead when the economy weakened.  If the Obama Administration is serious about rebuilding our infrastructure and creating new jobs, block grants are not a comprehensive answer.

Another potential form of holding pen is money allocated to a department, such as the Energy Department.  However, again, money dispensed in this matter is likely to sit around until bureaucrats determine how to spend it.  This, also, is inadequate to the crisis at hand.

Since this much spending is not easy and will require massive supervision to avoid waste and generate jobs quickly, the following two ingredients are critical to a successful plan.

Congress should empower a board to oversee the spending program.  As I have written in a prior post, business as usual won't work when we're talking about almost doubling normal discretionay expenditures.  A board would have the ability to act quickly to keep the money moving and oversee the entire process.

Second, Congress should establish a national state-by-state supervisory structure, staffed with auditors, engineers and managers, responsible to the board to oversee spending.  During the New Deal, one state director of the youth activities of the WPA in Texas was Lyndon Johnson. 

In short, it is important that we get this right.  It is neither practical nor responsible to double discretionary spending without creating a supervisory mechanism to oversee and monitor it.

Obama's Weekly Focuses on the Economy, Stimulus

The text: 

As the holiday season comes to end, we are thankful for family and
friends and all the blessings that make life worth living. But as we
mark the beginning of a new year, we also know that America faces great
and growing challenges—challenges that threaten our nation’s economy
and our dreams for the future.  Nearly two million Americans have lost
their jobs this past year—and millions more are working harder in jobs
that pay less and come with fewer benefits.  For too many families,
this new year brings new unease and uncertainty as bills pile up, debts
continue to mount and parents worry that their children won’t have the
same opportunities they had.

However we got here, the problems we face today are not Democratic
problems or Republican problems. The dreams of putting a child through
college, or staying in your home, or retiring with dignity and security
know no boundaries of party or ideology.

These are America’s problems, and we must come together as Americans
to meet them with the urgency this moment demands.  Economists from
across the political spectrum agree that if we don’t act swiftly and
boldly, we could see a much deeper economic downturn that could lead to
double digit unemployment and the American Dream slipping further and
further out of reach.

That’s why we need an American Recovery and Reinvestment Plan that
not only creates jobs in the short-term but spurs economic growth and
competitiveness in the long-term.  And this plan must be designed in a
new way—we can’t just fall into the old Washington habit of throwing
money at the problem.  We must make strategic investments that will
serve as a down payment on our long-term economic future. We must
demand vigorous oversight and strict accountability for achieving
results. And we must restore fiscal responsibility and make the tough
choices so that as the economy recovers, the deficit starts to come
down. That is how we will achieve the number one goal of my plan—which
is to create three million new jobs, more than eighty percent of them
in the private sector.

To put people back to work today and reduce our dependence on
foreign oil tomorrow, we will double renewable energy production and
renovate public buildings to make them more energy efficient.  To build
a 21st century economy, we must engage contractors across the nation to
create jobs rebuilding our crumbling roads, bridges, and schools.  To
save not only jobs, but money and lives, we will update and computerize
our health care system to cut red tape, prevent medical mistakes, and
help reduce health care costs by billions of dollars each year. To make
America, and our children, a success in this new global economy, we
will build 21st century classrooms, labs, and libraries. And to put
more money into the pockets of hardworking families, we will provide
direct tax relief to 95 percent of American workers.

I look forward to meeting next week in Washington with leaders from
both parties to discuss this plan.  I am optimistic that if we come
together to seek solutions that advance not the interests of any party,
or the agenda of any one group, but the aspirations of all Americans,
then we will meet the challenges of our time just as previous
generations have met the challenges of theirs.

There is no reason we can’t do this.  We are a people of boundless
industry and ingenuity.  We are innovators and entrepreneurs and have
the most dedicated and productive workers in the world.  And we have
always triumphed in moments of trial by drawing on that great American
spirit—that perseverance, determination and unyielding commitment to
opportunity on which our nation was founded.  And in this new year, let
us resolve to do so once again. Thank you.

See the video here.

For more on NDN's recent work on the economy and stimulus click here, and for our recommendation on including a national effort to give all American workers computer training visit here.

More Ideas for the Stimulus: Free Computer Training for All Americans

Yesterday my family went shopping at a local Apple Store for a new iPod for my wife (she chose a Nano). In between chasing my kids as they ran through the store, we were all greeted with a remarkable sight - a youngish Apple employee patiently teaching a class of 10 or so middle-aged adults about all this new fangled technology pouring out of Apple these days. Since then, I've thought a a lot about that image of seeing learning happening at a retail store right in the middle of the holiday rush. To me, it could become an inspiring image for this new age of Obama - America and its people retooling, together, for the new economy of the 21st century. 

The new economy of the 21st century will be many things, but we know it will and must be technology-rich, built on a low-carbon foundation and with the rise of nations like China, India, Brazil and Mexico, much more globally competitive. Successfully transitioning America and its people to this new economy is one of the incoming President's most daunting challenges, and one he seems to understand. 

NDN was pleased and excited last week when the incoming President embraced some ideas we've been aggressively advocating for - investments in greening government buildings, health IT, creating universal and ubiquitous broadband and computer access, including in our nation's public schools and overall investment in our nation's aging infrastructure. These are smart investments, ones that will not only help address the short-term challenges we face but also help accelerate our transition into this new economy.  

As he and his team consider other measures that have similar dual short- and long-term benefits, we hope that they take a serious look at another idea NDN has been promoting - offering free computer training to all Americans. NDN first proposed this idea in a compelling paper by Dr. Rob Shapiro last year, Tapping the Resources of America's Community Colleges: A Modest Proposal to Provide Universal Access to Computer Training. In it he wrote:

It is time that America ensures that all workers have real opportunities to build
the skills necessary to operate one of the most important new technologies of our time, computers. Young Americans are increasingly adept at working with computers, but many American workers still lack those skills. Here, we propose a direct, new approach to giving U.S. workers the opportunity to develop those skills, by providing federal government grants to America’s community colleges to keep open their computer labs three nights every week, staffed by instructors who will provide basic instruction to any person in the community who walks in and requests it.

The primary way any nation can ensure that its people enjoy broad‐based upward mobility is to raise the productivity of its workers and businesses. Achieving that goal, as the United States has done throughout most of its history, depends largely on three critical factors. First, the economy must promote the development and spread of new technologies, new ways of organizing and operating businesses, and other innovations that create new value and new efficiencies. Second, companies must invest in those technologies and in other business and economic innovations, so workers can use them to perform their jobs more productively. Finally, workers, companies, and the government must provide continuing support for all workers to acquire the skills to operate new technologies and perform well in innovative business environments.

The program proposed here, fully implemented, could provide that support and enable all American workers to learn basic computer skills at a total annual cost of less than $125 million a year.

Later in 2007, Senator Obama's campaign embraced the idea, and Democratic Caucus Chair John Larson has been working on a bill that would introduce the idea in the House. We discussed this idea, and a sister idea - putting a laptop in every backpack of every American child - at a forum last year with Rob, Rep. Larson and Transition Advisor Alec Ross.  

There is great societal power in this program, well beyond its surface appeal. Imagine if the President launched a multi-year campaign to challenge Americans to upgrade their skills, and become fluent in the new ways of the Internet and computers. That he would offer training, ubiquitous access and in exchange, we would all go back to school - making it patriotic to retool around these new technologies and this new way of working. Older public officials could take these classes and encourage their fellow citizens to do so. Community leaders could engage in public chats with students in newly wired schools. And so on. It could become a national, communal effort to move our society and people to this new economy, together, embodying this new ethic already articulated by President-elect Obama that what must be done must be done together, that there is a limit to what government can do.  That by embracing this national effort to retool we will ensure that no American is left behind in this new economy of the 21st century.

My hope is that this moment I witnessed in the Apple Store yesterday - Americans learning, retooling - becomes a a model for an entire generation, and that together we work to make sure all Americans have the tools they need to live, learn and prosper in the new economy of this daunting new century.

The Politics of Trading Recession for Inflation

On virtually everything economic, the Bush Administration and much of Congress have become the gang that can't shoot straight -- and their stray bullets could take down a good piece of the nation's economic prospects. They have directed hundreds of billions of taxpayer dollars to financial institutions (and soon, auto companies), and they're getting ready to direct several hundred billion more at the overall economy. In all of these instances, a political drive to display the will and capacity for large actions has overwhelmed deliberate thinking about the specific consequences of those actions. The Obama presidency and the country may pay a big price for this scattershot approach.

The latest example of this dangerous development is the ever-expanding size of the long-awaited next stimulus. We're in a deep and serious recession and a major stimulus was certainly needed -- mainly six months ago, when the Bush Administration and Congress provided tax rebates which were largely saved and had little stimulative effect. Now we know how bad the downturn is turning out to be, and Congress and the Administration-in-waiting is preparing another stimulus of a size commensurate with what's already unfolding, once again, as if this were six or eight months ago. A stimulus providing another $200 billion to $300 billion in new federal spending makes sense, mainly as insurance for another shock to the economy. But a $500 billion to $750 billion package like the one now under discussion will miss its target by many months and mainly indicates that the new rule is that anything goes when you win and damn the consequences.

Congress seems intent on responding to this recession as if everything known about how the business cycle works can be ignored, and the consequences could be serious. The Obama team is focused on long-term investments in 21st century energy and transportation infrastructure, modernizing health care records, expanding training and education, and extending broadband and IT access for poor children. That's all good news for the long-term health of the economy and for the incomes of many households.  The catch is, long-term investments entail not a one-time boost in spending, but continued funding. So when we raise the ante on those investments from $100 billion or so to $300 billion, $400 billion or $500 billion, we're implicitly choosing either to foreswear any other commitments, such as health care, or to embrace another round of dangerously large, structural deficits.

Since the new politics seems to involve never saying no, the likely result of the current course, on top of the extraordinary infusions of credit by the Federal Reserve, is serious inflation once the downturn begins to resolve itself. This pattern is disturbingly similar to the short-sighted and cavalier approach to long-term risks that got the nation into this mess. And it continues to develop alongside the Treasury and Congress' continuing inability to address the rising foreclosures still driving the financial crisis and the credit freeze accelerating the downturn. Yet real responses are within reach: place a moratorium on foreclosures while Fannie Mae and Freddie Mac renegotiate the terms of millions of troubled mortgages and link financial bailout funds to a commitment to use them to extend credit to businesses. If we do that, the economy won't need so much fiscal or monetary stimulus. 

The current approach presents other serious risks. This pattern of fast-rising spending, on top of the bailouts already done and those to come, as well as more tax cuts, could push the U.S. deficit to levels that even the United States will have trouble financing. The Asian and Middle Eastern governments that provide much of our public financing could stop -- either because they'll see inflation coming, too, or because the global downturn and falling oil prices sharply reduce their savings and thus, their ability to lend them to us. The U.S. Treasury will always find the funds it needs, but it may have to pay a lot more to borrow them, which means higher interest rates. So the current approach risks an interest rate spike on top of everything else, which at best would lead to a substandard recovery. With all of its talent and broad public support, the Obama presidency should be able to do a lot better than that.

Obama's Emerging Economic Strategy

In his Saturday address this morning, Barack Obama started filling in details of his emerging economic strategy.  Major elements of this speech - massive investment in our infrastructure, putting computers in our schools and making universal connectivity to the internet a national priority, health IT and making our government buildings more energy efficient (for both see here) - should be familiar to NDN readers, as they are ideas NDN has been championing for some time.  

Needless to say we are pleased with the direction the President-Elect is taking, and are anxious to work with him to turn these powerful words into reality next year.  

Here is the full text of this important speech: 

Good morning.

Yesterday, we received another painful reminder of the serious economic challenge our country is facing when we learned that 533,000 jobs were lost in November alone, the single worst month of job loss in over three decades. That puts the total number of jobs lost in this recession at nearly 2 million.

But this isn't about numbers. It's about each of the families those numbers represent. It's about the rising unease and frustration that so many of you are feeling during this holiday season. Will you be able to put your kids through college? Will you be able to afford health care? Will you be able to retire with dignity and security? Will your job or your husband's job or your daughter's job be the next one cut?

These are the questions that keep so many Americans awake at night. But it is not the first time these questions have been asked. We have faced difficult times before, times when our economic destiny seemed to be slipping out of our hands. And at each moment, we have risen to meet the challenge, as one people united by a sense of common purpose. And I know that Americans can rise to the moment once again.

But we need action - and action now. That is why I have asked my economic team to develop an economic recovery plan for both Wall Street and Main Street that will help save or create at least two and a half million jobs, while rebuilding our infrastructure, improving our schools, reducing our dependence on oil, and saving billions of dollars.

We won't do it the old Washington way. We won't just throw money at the problem. We'll measure progress by the reforms we make and the results we achieve - by the jobs we create, by the energy we save, by whether America is more competitive in the world.

Today, I am announcing a few key parts of my plan. First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won't just save you, the American taxpayer, billions of dollars each year. It will put people back to work.

Second, we will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We'll invest your precious tax dollars in new and smarter ways, and we'll set a simple rule - use it or lose it. If a state doesn't act quickly to invest in roads and bridges in their communities, they'll lose the money.

Third, my economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.

As we renew our schools and highways, we'll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the internet, every child should have the chance to get online, and they'll get that chance when I'm President - because that's how we'll strengthen America's competitiveness in the world.

In addition to connecting our libraries and schools to the internet, we must also ensure that our hospitals are connected to each other through the internet. That is why the economic recovery plan I'm proposing will help modernize our health care system - and that won't just save jobs, it will save lives. We will make sure that every doctor's office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year.

These are a few parts of the economic recovery plan that I will be rolling out in the coming weeks. When Congress reconvenes in January, I look forward to working with them to pass a plan immediately. We need to act with the urgency this moment demands to save or create at least two and a half million jobs so that the nearly two million Americans who've lost them know that they have a future. And that's exactly what I intend to do as President of the United States.

Thanks for listening.

More Background: Note this passage from an essay Rob Shapiro and I released in early November, A Stimulus for the Long Run

This change should be directed toward creating a 21st century, low-carbon, innovation-driven economy, as the development, spread and efficient use of economic innovations will continue to be the most important factors driving all our future progress in growth, productivity, and incomes. For example, productivity gains are increasingly tied to an employee's capacity to operate effectively in workplaces dense with information and telecommunications technologies. Within a decade, workers who cannot perform in such work environments will be marginalized economically. Therefore, the stimulus should help businesses and workers prepare for the ideas-based economy, through grants to community colleges to keep their computer labs open and staffed in the evenings and on weekends for any adult to walk in and receive free computer training, a plan Obama endorsed as Senator. The stimulus also could include an innovative program to provide inexpensive laptops to every sixth-grader in America and spread broadband installation to schools, local libraries, and human services offices that currently lack it.

There is already a broad consensus on the need to include infrastructure investment in the stimulus, but instead of addressing only roads and bridges, America can also take this opportunity to invest in a new generation of clean infrastructure. The federal government can lead the way, through greening its buildings and vehicle fleets and putting 1,000 megawatts of solar power on its roofs. It also can provide funding to help modernize the electrical grid and build a new generation of light rail systems for urban areas, as well as greater support for research and deployment in renewable energy and energy efficiency technologies, and tax credits and other incentives for greening America's homes and private buildings.

Aside from energy, the other rapidly rising business cost squeezing wages and jobs is health care. To help hold down these costs for the long haul, the stimulus can provide support for hospitals, clinics and physicians to purchase and install the hardware and software for standardized electronic medical records systems. This will serve as a first down payment for 21st century health care reform, and will ultimately reduce costs and promote best-practices at the nation's hospitals.

These are all investments we know we have to make if we intend to make the U.S. economy more efficient, innovative and sustainable. They also are all investments that will ultimate pay for themselves several times over. Congress and President-elect Obama can use this opportunity not only to create more jobs, but to do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure. And taking this course by passing a stimulus for change could be an early and important opportunity for him to practice both his new politics and a new form of economic leadership.

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