Obama Finds Opportunity In Crisis
Crisis and opportunity, those are two of the most enduring messages threaded throughout Barack Obama’s plan to revive the nation’s ailing economy.
In his Thursday address at George Mason University laying out his vision, the president-elect cited dire conditions in the job and credit markets as reason for swift passage of a major stimulus package.
But, embedded within that package, Obama ticked off a list of priorities – from putting medical records on the Internet to developing a modern energy grid capable of delivering alternative fuels – that would have been extraordinarily difficult to pass in Washington in normal times.
“It is time to set a new course for this economy, and that change must begin now,” Obama said.
It’s an approach to a crisis that is as audacious as Obama’s presidential dreams once seemed.
But to those who’ve listened carefully to Obama and his chief advisers, it’s perhaps not a surprising one. No less than Rahm Emanuel, Obama’s incoming chief of staff, has been known to say: “Never let a crisis go to waste.”
That Obama would embrace such an aggressive strategy with his first legislative initiative suggests an administration intent on seizing its opportunities, playing for big wins, and ignoring the naysayers who argue that difficult economic times call for tempered measures.
His first long-ball, in fact, may well wind up reinforcing that approach.
Obama is almost assured of seeing passage of the stimulus bill and the down payments it contains on reforms he promised on the campaign trail.
To be sure, Capitol Hill Republicans gripe over certain provisions, conservative thinkers lambast others, and Democratic lawmakers will insist on their own revisions.
But no serious and organized opposition has emerged to the roughly $750 billion program that is expected to move through Congress in the coming weeks.
Now, none of this is meant to suggest that Obama is not reacting to a serious economic crisis. Most economists interviewed in recent days readily agree with the grim picture he painted and the need for dramatic government intervention.
The Center for American Progress, a progressive think tank, has posted a series of numbers that illustrate the extraordinary weakening in the economy.
Job losses are “cascading at an accelerating rate,” says Heather Boushey, a center economist.
From January to August of 2008, monthly job losses were just over or well under 100,000. In September, more than 400,000 jobs were lost; in October, it was more than 300,000; in November, the number exceeded 530,000.
Wall Street is braced for a report on Friday that will show roughly 600,000 jobs were lost in December. If that turns out to be true, says James Bianco, a Chicago analyst, it will become one of the five worst monthly job loss rates since 1939, when the statistics began being collected.
“In other words, it will be one of the worst job reports in our lifetime,” says Bianco.
With the prime lending rate at zero percent, the Federal Reserve Bank has scant tools left to prompt lending institutions to ease a credit squeeze that is bottling up business and consumer loans.
The credit freeze was the primary impetus for the Bush Administration’s $350 billion TARP program, which has alleviated some of the stress in the market by encouraging banks to lend money to each other.
But that program failed to contain the damage, which is now affecting all sectors of the economy – including consumer spending, which accounts for three-quarters of the gross domestic product. Last month, consumer confidence stood at 38 percent, a near historic low.
“Death spiral,” are the words John Dearie, of the Financial Services Forum, uses to describe today’s dynamics. “It is a crisis of faith and a crisis of confidence,” he added. “When you are tryig to re-establish faith, you have to do something impressive.”
The study of economics can sound something like physics, a science in which some natural law holds things together and makes things happen, explains Dearie. The truth is different, he says, the essence of economic activity is taking risk.
When banks are afraid to make loans, consumers too skittish to seek them, businesses unable to get them, and investors shrinking from losses, it creates a “fear dynamic,” a psychological state of play that no economic sector is big enough to uncoil, says Dearie.
It was that dangerous force that Obama referred to on Thursday when he said: “Only government can break the vicious cycles that are crippling our economy – where lack of spending leads to lost job which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.”
But even Obama stimulus package – teamed with Bush’s TARP program -- won’t be enough to cure the economy of its fundamental problems, Obama and economists acknowledge.
An infusion of cash to pay for construction jobs, aid to states to stem drastic layoffs, and an expansion of government funded aid programs for the unemployment can ease the pain. But they won’t alleviate it all.
In part, that’s because the economy ultimately must correct itself by shrinking to a size that fits the post-housing bubble financial markets. For now, government can just fill in some of the gaps.
“There’s no good answer here,” says Bianco. “I’m not going to criticize Obama or the Bush Administration for what they’ve done. Even though I think it may not work, the other option – doing nothing – could be equally bad.”
But Obama is doing more than just trying to let the economy down softly. He’s also trying to create a silver lining by plowing billions into what he hopes will become 21st century industries that will flourish once a recovery begins.
Many of those jobs are tied to alternative energy. They could range building solar panels to refitting buildings for energy efficiency.
Obama’s push to begin computerizing medical records could lay the foundation for his much broader plans to overhaul the health care system and cut costs.
If he succeeds, the savings could make Medicare and other government health programs that are slated to run out of money with the boomer generation far more viable in the future.
In addition, the president-elect is seeking to instill a cultural change in America that shifts it from the heady days of easy credit and every man for himself to one of savings, hard work and community-first.
That aim is among his most audacious -- and likely elusive.
First, his decision to use the Treasury to ease the pain of recovery could undercut his tough-love goals. Searing lessons are learned during trying times. Behavior adjustments come during uncomfortable ones.
Secondly, his first target for therapy will be his most difficult one – the U.S. Congress.
“If we hope to end this crisis, we must end the culture of anything goes that helped create it – and this change must begin in Washington,” Obama said, citing a need to reign in government spending.
As evidence of how tough this assignment will be, look no further than the first challenge Obama has put to his colleagues on Capitol Hill: That lawmakers refrain from attaching earmarks to his stimulus package.
Note: Even he’s not calling for a ban on earmarks in all cases.
“I think he’s going to find some serious challenges, beginning with his pledge to pay for everything,” said Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce. “Every line item in the budget has a constituency, both outside of Congress and inside of Congress.”