Financial Times Editorial On Obama's Stimulus Plan

A plan to spend – and to pay it back

Published: January 8 2009 19:28

Barack Obama is not yet in office but is already working hard to persuade US taxpayers and the Congress that an enormous fiscal stimulus is needed, and quickly. This week the Congressional Budget Office predicted that the US budget deficit would soar to $1,200bn this year even if no new measures are introduced – and this forecast is itself a deliberate underestimate, because it allows for some promised tax increases that almost certainly will not happen. This is not enough, says the president-elect: a further stimulus of at least $800bn over two years is needed, he says.

Mr Obama is right, both about the scale of the problem and the urgency of getting the new plan in place. The recession is still deepening, and unless further steps are taken the prospects for incomes and employment are grim. The US is a creditworthy borrower. At present, indeed, investors seeking a safe haven worldwide are avid buyers of its obligations. Fiscal policy can, and should, respond boldly to fill much of the gap in aggregate demand that a contracting private economy will create. If anything, the numbers Mr Obama is suggesting – bold by other governments’ standards – are still too small.

The details of Mr Obama’s American recovery and reinvestment plan are by no means complete, and Congress will have the last word, but the shape of Mr Obama’s proposal seems mostly right. He is calling for a mix of huge increases in spending, notably on infrastructure, and tax cuts both for the lower paid and for businesses. At the same time, recognising the longer-term fiscal danger, and that many US taxpayers question the wisdom of massively expanding government outlays, he is underlining the need for eventual fiscal consolidation, and hopes to find ways to bind the government to that goal. Such efforts have been attempted in the past and, sometimes, have worked.

The emphasis on bold action in the short term and fiscal caution for the longer term is correct – though the new administration and Congress should not commit themselves to fiscal consolidation too soon. They need to keep an open mind on how persistent this crisis will prove to be. And for the sake of effectiveness in buoying demand, the more the balance of tax cuts and higher public spending can be pushed in the direction of spending that directly supports employment and the living standards of those most at risk, the better. Infrastructure spending, support for state governments (which will otherwise have to slash payrolls and services) and extra assistance for the unemployed should be the priorities.

- www.ft.com/cms/s/0/03ec6548-ddb9-11dd-87dc-000077b07658.html?nclick_check=1

 

Yeah, I'm sure conservatives and Republicans will have a boatload of excuses why President Bush had a failed administration and why President Obama had a successful administration. :laugh:

 

Just like a good football coach before the big game. It is always best to downplay expectations so that successes look even better.

I think that Barack Obama has more political savvy than his conservative/Republican critics have. That's why he won in November and will run circles around them during his administration.

In football terms he will be the SEC team and his conservative/Republican critics will be his hapless foes in the BCS Championship Game.