Obama using grab-bag approach to fight recession
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President Barack Obama speaks on the economy at the Brookings Institution in Washington, Tuesday.
WASHINGTON — Franklin Roosevelt, confronted with the worst economic crisis in the nation's history, wrote the book on government jobs programs. Since FDR, presidents have been less ambitious because the economic challenges they faced were less severe.
President Barack Obama, battling the worst downturn since FDR's time, has put together a grab-bag program that borrows a little from Roosevelt but much more closely resembles the approach taken by recent presidents of both parties, who have leaned heavily on tax cuts to spur job creation.
Obama's New Deal-lite approach represents a compromise between putting more resources into getting the country out of a recession and the limitations he faces with budget deficits that have already soared past the $1 trillion mark, raising concerns among the foreign investors who buy America's debt.
Given those soaring deficits, Obama is not trying to push jobs programs of the scale that FDR used to fight the 1930s Depression, when he created an alphabet-soup collection of government agencies to put people back to work, from the Civilian Conservation Corps to the Works Progress Administration.
Instead, Obama is emphasizing further increases in infrastructure spending beyond what is already in the pipeline from the $787 billion economic stimulus bill.
Taking a page from past Republican and Democratic administrations, Obama also is proposing tax credits targeted to small businesses to help them hire new workers and give them a tax break for buying new equipment to expand and modernize their operations.
He also is proposing extending a number of programs already included in his February stimulus measure, including extra support to state and local governments to keep them from having to lay off workers.
"Obama is trying an eclectic approach to jump-starting employment growth and that is not surprising given that the labor market today is the worst it has been since the Great Depression," said Mark Zandi, chief economist at Moody's Economy.com.
Obama's efforts are sizable compared with the stimulus measures offered by recent administrations — also not surprising, given that the recession that began in December 2007 is the longest and deepest since the 1930s.
President George W. Bush offered immediate tax rebates when he was trying to get the country out of the brief and mild downturn that hit during his first year in office.
Like Obama, Ronald Reagan also faced unemployment above 10 percent during his first term, but his answer to the 1981-82 recession was to emphasize a major tax cut that reduced the top tax rates. Reagan's jobs program was a sizable military buildup that increased troop strength and bolstered employment among defense contractors.
Presidents Jimmy Carter and Gerald Ford also battled serious recessions in the 1970s, but their government stimulus efforts had to take into account soaring inflation from a series of oil shocks that gave the country a new economic worry: stagflation, a toxic mix of inflation and economic stagnation.
Just as Obama sought to highlight his efforts to bolster the economy with a jobs summit last week, a number of presidents have held high-level economic gatherings at the White House to showcase their concerns about various economic maladies.
Not all of those sessions have ended well. The Ford administration was ridiculed for its WIN buttons, standing for "Whip Inflation Now," which proved as ineffective as Ford's other ideas for curbing inflation.
Obama's new proposals come with a price tag to be determined later. Obama said the government could afford the new efforts because the administration had just trimmed the ultimate cost of the unpopular Troubled Asset Relief Program by $200 billion. But his effort to capture bank bailout funds for further economic stimulus is already running into stiff opposition from Republicans.
Obama is seeking to split the difference between his worries over how a weak economy will affect Democrats' chances in the 2010 elections and his concerns about soaring budget deficits. Republicans say all the TARP funds should go to reduce a budget deficit that soared to $1.42 trillion last year and is projected by the administration to remain above $1 trillion annually for the next two years.
Private economists said the program is likely to hit $200 billion or more after Democrats, who control Congress, get through massaging the plan. That would come on top of the $787 billion stimulus program passed in February.
Economists normally are skeptical of government jobs programs, arguing that by the time Congress manages to pass the program, the recession is usually over and the economy is generating jobs on its own. But as in the 1930s, the current downturn is viewed as severe enough to warrant government help.
In the Great Depression, unemployment hit 25 percent in 1933, the year that FDR took office. The unemployment rate this time around is expected to be nowhere near that level, but it could still surpass the post-World War II record of 10.8 percent set in 1982 before a sustained recovery takes hold next summer. The jobless rate is currently at 10 percent.
"Roosevelt's efforts in the Great Depression gave a sense of hope to people who had lost hope," said Nariman Behravesh, chief economist at IHS Global Insight. "In the current situation, Obama's program is aimed at giving companies enough confidence to start hiring a little sooner than they otherwise would."
Dec 10, 2009 at 8:03 p.m.
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oops wrong post...sry
Dec 10, 2009 at 8:02 p.m.
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Zoom your arguments against opening the insurance borderlines are flawed. The very problems with increased costs are inefficiencies everywhere including insurance companies. By requiring each insurance company to have requirements based in every state they operate, ALL DIFFERENT, is a deterrent to efficiency. A single set of very limited mandates nationwide combined with the ability to purchase a custom level of coverage the individual requests will save consumers money.
To your argument #2, that is already in place; the above would fix it.
Dec 10, 2009 at 4:38 a.m.
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The Great Depression examples are totally flawed in nature, to even make ANY REMOTE comparison to today. The monetary system in of itself was totally different (you had the joke of the Federal reserve, but NOTHING like it is now), not to mention just the nature of the times, technology, and culture, ext. What they are doing now is not even a Keynesian approach; as the deficit projections are in the TRILLIONS for DECADES to come. This is not just short term spending to jump start the economy, which is the idea behind a Keynesian approach. There is no exit strategy. No getting out, short of monetizing (printing) the whole thing.
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The entire monetary system is on the verge of collapse; as the debt explodes, revenues to the Treasury shrink, and unfunded liabilities spiral out of control . All you Keynesian optimists will be in for a huge surprise; as things are never going to get better; and the crash of the US dollar will be the final nail in the coffin for the US economy. The FOMC has fired all it's bullets. The shell game they have been playing of circling printed money, backing worthless assets, and monetizing debt in futile attempts to restore confidence; will all come to a crashing end as the US falls from the it's wold Super power role. Much like ancient Rome, Egypt, Persia, ext of the past; all great civilizations ultimately fail because of power structures that get arrogant, greedy, power hungry, and reckless.
Dec 9, 2009 at 12:51 p.m.
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If you think that Reagans defense spending in the 80's was done to spend our way out of a recession, then you don't remember the military of the 1970's. It took us until the 1980's to break the habit of gutting our military after every conflict only to pay for it later due to inferior equipment and training. Even with the increase in spending, it did not approach the levels of spending seen currently.
the last budget surplus was based on once again cutting defense spending. Remember?, no spare parts, reduced budgets for training, reduce the sizes of the branches of the military (relying on guard and reserves to make up the difference-now resulting in complaints of extended/multiple deployments) and raising taxes.
Dec 9, 2009 at 12:16 p.m.
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Zoom--What budget surplus that Bush wasted are you referring to? Clinton's? Please give me an example of just one year when the national debt was reduced during his administration......
Dec 9, 2009 at 11:53 a.m.
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Year after year, the fed keeps building up the scope of its agencies and bureacracy. This starts to eventually crowd the private sector out of its ability to create jobs and sustain the economy. These miscalculations (stimulus plan, WPA, recovery acts and spend and spend policies)demonstrate that they (fed) do not and cannot possess the information, knowledge,, means, and discipline to manage the economy.
To run the (monstrocity) fed is a formidable task. Consider the following:
Employs about 2 million employees to carry out its policies.
Administers a budget of $3 trillion dollars. Zoom-you think insurance CEO's are robbing you, think again.
Dec 9, 2009 at 11:35 a.m.
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RetiredAirForce, I agree that Keynesian theory is often abused by politicians furthering their own agenda. Don't forget though that it was Reagan who embraced that same theory in the early 80's that got us out of a recession. As far as your comment about allowing tax payers to hold on to their money to encourage spending, remember how well that theory worked under GW? The problem is that GW's tax cuts were not used at the right time, plus they benefitted unearned income makers because of tax cuts on capital gains, dividends and estates. That of course just put more of a burden on us actually paying income taxes.
Dec 9, 2009 at 11:08 a.m.
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Why is it Keynesian theorists insist the government must be the one to spend the money?
When in reality government is spending against borrowed future tax dollars. The logical approach would be to have these same tax payers just keep more of their own money to spend, there by driving the economy. The problem with this approach, most of these same theorists don't want you in charge of your own money, thinking only the government can spend it the right way.
Dec 9, 2009 at 10:55 a.m.
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No, sound fiscal policy attempts to smooth out the economic peeks and valleys...if the government wouldn't get us into dumb wars that cost billions of dollars a month for years on end.
Keynesian economics says we should have a SURPLUS in the good times, and a DEFICIT in the bad times. Deficit spending has gotten us out of every recession, and the Great Depression. Unfortunately, Congress likes to spend in the good times too. It's a shame Bush and his Republican congress wasted the last budget surplus.
Dec 9, 2009 at 10:37 a.m.
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Obama is a tool. Spend, spend, spend, with the same end results. No jobs.
Dec 9, 2009 at 10:22 a.m.
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this increase IN cash flow to individuals and busineses helps them make decisions about thier own economic situation.
Dec 9, 2009 at 10:16 a.m.
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The best way to simulate the economy is for the fed to slash captial gains taxes, corporate income taxes, and individual income taxes. Consequently, this increase cash flow to individuals and busineses to make decisions about thier own economic situation. People and busineeses would use this money to spend or invest which would sustain the economy by buying products or services.
Dec 9, 2009 at 10:09 a.m.
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What are you smoking?
The government does not add value to the economy. It removes value fromn the economy by imposing taxes on citizens and provies money to other citizens. It borrows money that could be used to by people who invest and rdestributes it somwhere else.
Dec 9, 2009 at 10:01 a.m.
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That's an urban myth. In fact, by 1937 the United States was emerging from the first recession and Congress forced FDR to cut many of the New Deal spending programs, which (due to the decline in aggregate demand, as the global depression continued) plunged the country back into a second recession. Measured only through 1938, to exclude the effects of the war, FDR averaged annual GDP growth of over 4%, which is far more than any postwar president. This is why unemployment peaked in 1935 and declined virtually every year thereafter until the postwar period. Government spending drove job creation. Even if you credit the war, government spending drove job creation.
Dec 9, 2009 at 9:29 a.m.
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This article, like Obama's plan lacks any details other than to create/save government jobs, and to grow the government larger. Leaving the details up to congress only leads to more pork barrell spending by the Democrats. It time for "real change", meaning get the career politicians out of office. Support the Tea Party as a viable third party in 2010 and 2012.
Dec 9, 2009 at 9:08 a.m.
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FDR did not save the economy, World War II (unfortunately) helped the U.S. get out of the that mess.
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