Economy: Will Obama's Stimulus Plan Work? | Newsweek Newsweek - Robert J. Samuelson

Will Obama's stimulus plan really work?

Jan 5, 2009 | Updated: 1:21 p.m. ET Jan 5, 2009

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We should resist the temptation to see the forthcoming "economic stimulus" package as a panacea. It won't be. At best, it would represent traditional "pump priming." This familiar metaphor is worth pondering. To get the pump started, you add water; then the pump operates independently. Similarly, the stimulus will succeed only if the economy resumes spontaneous expansion and job creation.

The incoming Obama administration has understandably focused on the immediate task of designing the stimulus program. It has said less about how it would encourage self-sustaining economic growth. But that, in the end, is the crucial issue. Ever-expanding government budget deficits — reflecting spending increases and tax cuts — would ultimately be ineffective and self-defeating.

The stimulus qualifies as a necessary evil, a parachute against an economic free fall. Conventionally, the economy is sliced into four sectors: consumer spending; business and housing investment; net exports; and government spending. The first three sectors are weakening. Consumer confidence is at a record low, according to a Conference Board survey conducted since 1967. Only 6 percent of Americans think jobs are plentiful; 41 percent think there will be fewer jobs in six months. Housing construction has collapsed; businesses are fearful of making new investments. Exports suffer from faltering foreign economies.

If government doesn't prod the economy, what will? The danger is that pessimism and shrinking spending would feed on each other, pushing output down and unemployment up. By propping up production, employment and confidence, a stimulus package aims to buy time. Even so, joblessness would rise. IHS Global Insight predicts that it will peak at 9.2 percent in early 2010. But a free fall would be averted, and as overborrowed Americans repaid their debts, they would resume higher spending. Bloated housing inventories would decline; home construction would revive. Business investment would follow.

That's the theory.

By all reports, the stimulus will be massive. Stanley Collender, a respected budget expert, thinks the 2009 deficit could exceed $1.3 trillion, about 9 percent of the economy (gross domestic product). In dollars, that would triple the 2008 deficit of $455 billion. As a share of GDP, it would dwarf Ronald Reagan's post-World War II record of 6 percent in 1983. Gasp.

So Samuelson believes the key to our economic salvation is a strong export market. The current global economy is not set up for that. First, most the world's people survive on less than $ 2 a day. How can they buy anything that America wants to sell?
Our trade agreements need to be re-written to guarantee decent wages, health care, union representation to the rest of the world. In addition, current global economy is on a track to mass suicide. We need to de-carbonize the atmosphere, create environmentally friendly renewable energy, and recycle our resources. We also need to promote family planning.
In terms of creating exports, we first of all need to spend tax money to restore the Consumer watch dog agencies (manned by tough cops, not industry cronies.) We need to produce safe products and to ensure that Made in America is a warranty - not a warning. We need to invest in R & D for green technology., especially in the form of renewable energy. Apparently Samuelson did not read the article A Bug to save the Planet , interview with Craig Vetter conducted by Fahreed Zakaria. Vetter proposes breeding a special form of eColi bacteria to provide a clean burning replacement for fuel. Another possibility is using algae to produce clean burning fossil fuel. If you check out the blog The Future of engineering, you will find a large number of additional proposals.
America's economic future is green technology. This is a multi-trillion dollar industry which can produce millions of high quality jobs. Currently the carbon dioxide ratio is 385 parts per million. We need to get below 350 parts per million. At our current rate, the polar ice cap will completely disappear within 3 to 4 years. Has Samuelson calculated the implications of this catastrophe.
We desperately need to rethink our economy - and unfortunately Samuelson does not have the mental ability to do this.

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Posted By: alexgloveronaquest @ 02/05/2009 9:17:55 PM

I think we have to back this plan and get something going, I agree 100% with the theory that sometimes change requires that we compromise the way we look at ourselves. Too many people are being conservative about this matter and thinking only of themselves. We need to support this in a collective effort to better the lives and futures of our children.
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Posted By: "flower" @ 01/25/2009 2:15:52 PM

The stimulus package appears to emphasize jobs & infrastructure rebuilding with environmental incentives. What I don't see is any direct aid for those who lost their homes in the past 2 years, & the 2 million more who will lose their homes in 2009. This is what triggered the credit crisis in the first place. Singling out these families for a large infusion of immediate cash will help the economy more, and faster, than any additional plan.
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Posted By: Mwalimu @ 01/10/2009 12:08:18 PM

So Samuelson believes the key to our economic salvation is a strong export market. The current global economy is not set up for that. First, most the world's people survive on less than $ 2 a day. How can they buy anything that America wants to sell?
Our trade agreements need to be re-written to guarantee decent wages, health care, union representation to the rest of the world. In addition, current global economy is on a track to mass suicide. We need to de-carbonize the atmosphere, create environmentally friendly renewable energy, and recycle our resources. We also need to promote family planning.
In terms of creating exports, we first of all need to spend tax money to restore the Consumer watch dog agencies (manned by tough cops, not industry cronies.) We need to produce safe products and to ensure that Made in America is a warranty - not a warning. We need to invest in R & D for green technology., especially in the form of renewable energy. Apparently Samuelson did not read the article A Bug to save the Planet , interview with Craig Vetter conducted by Fahreed Zakaria. Vetter proposes breeding a special form of eColi bacteria to provide a clean burning replacement for fuel. Another possibility is using algae to produce clean burning fossil fuel. If you check out the blog The Future of engineering, you will find a large number of additional proposals.
America's economic future is green technology. This is a multi-trillion dollar industry which can produce millions of high quality jobs. Currently the carbon dioxide ratio is 385 parts per million. We need to get below 350 parts per million. At our current rate, the polar ice cap will completely disappear within 3 to 4 years. Has Samuelson calculated the implications of this catastrophe.
We desperately need to rethink our economy - and unfortunately Samuelson does not have the mental ability to do this.