Sunday, January 25, 2009

Problems With Obama's Economic Recovery Plan

I see a few fundamental problems with Obama's $800 Billion economic stimulus plan as it is currently being presented. Today's economic situation has created an opportunity to establish new sustainable industries. However, the plan doesn't focus on providing incentives and seed capital for the creation of "Green" Companies.

There are three main reasons why this is important:

1. The Federal government doesn't have the capacity to create jobs like the private sector could. It's the private sector that will have to create the bulk of the 3 million new jobs over the next few years that Obama says he wants.

2. The infrastructure projects will probably have a very narrow impact in terms of job creation. It will be great for the road construction contractors, the concrete suppliers, folks who are in the construction trade, and the few businesses that will get a residual benefit. However, I don't see how this will help workers across the board who have either lost their jobs or who are in danger of losing their jobs. Most of the job loses have been across the spectrum... from finance/banking, to retail and manufacturing, to tech companies and airlines. In fact, one of the only healthy and insulated job sectors is in the Healthcare industry. There will always be a need for nurses, hospital staff... billing agents, pharmacists, etc. But other than that... workers are feeling the pinch across the whole spectrum of employment. So narrowly focusing on certain kinds of infrastructure improvements (which the Country does need) doesn't seem to make much sense to me. This probably won't be a benefit to most of the workers who have lost jobs over the past year or so... or to those who are about to lose their jobs.

Furthermore, it will take quite a long time for this kind of spending to trickle down through the rest of the economy, and even when it does, it will be so narrow that the impact may not be as fruitful as policymakers hope.

3. The benefits from this kind of spending will be temporary. Once roads and bridges are built or rehabbed and all the money is spent, the jobs created through temporary State and Federal contracting will have to be eliminated. There is no sustainability involved in the plan. Where will the jobs come from once the construction projects start or when they are completed?

Solution

As I have mentioned before in a suggestion to Change.org... The Obama Administration should create a quasi-government entity (like the FDIC, TVA, Corporation for Public Broadcasting...there are templates for this already), that would be responsible for allocating funding to help seed the creation and development of new industries to meet current and future challenges. This entity would provide grants and low interest or no interest guaranteed loans for start-up companies. This government entity would also help spur innovation by encouraging competition among existing and future companies, and encouraging research (including doing research of its own). Once this entity is in place, massive amounts of money could go towards establishing new sustainable jobs in new industries. Green jobs, jobs in technology, education, transportation, urban development and housing could all be created...and these would be sustainable jobs that would be around years after the initial funding dries up.

The current plan seems to focus too much on throwing massive amounts of money into a black hole, rather than investing the money and directing it to the areas of the economy that would create the biggest and most sustainable return on the investment over time. There would be more Federal and State tax revenues as a result of a more comprehensive and sustainable job creation plan, and there would be a much wider impact from the residual jobs that would be created (jobs that would be created in sectors that support the larger industries receiving the Tax money).

Without this, Obama's plan runs the risk of falling flat, while costing taxpayers more than a Trillion dollars... debt that the Country already cannot afford, but that would be even harder to pay back in the context of a failed jobs creation effort. These new jobs and new industries will not sprout up on their own. Banks simply don't want to loan money for corporate projects; and existing transportation, technology and energy companies aren't being pressured to innovate due to inadequate competition and the lack of new markets to sell their goods and services. Companies have no incentive to spend money on R&D, especially at a time when everyone else is pulling back on spending and watching every cent. They want to be certain that there will be a market (that would create a return for them almost immediately) before they invest tons of money on new projects. Therefore, the Federal government must intervene to act as sort of a seed factory and incubator for the creation and development of new industries. It must also encourage innovation and competition among existing companies by doing research of its own, by creating a market that companies will want to compete for (Federal Government contracts, retrofitting Federal buildings for energy efficiency, providing Fuel efficient autos, etc), and by supporting new entrants.... start-up companies that will be the companies of the future.

Much more should also be done to stabilize the Housing Market... where one of the main focuses should involve helping homeowners avoid foreclosure.

3 comments:

Ruthdfw said...

Suprisingly in the Dallas area hospitals have been laying off medical workers.

I appreciate your idea of a govt dept that invests in start-ups. However, why not simply provide more funding to the Small Business Admin. Also, I thought green job creation was a big part of Obama's program.

The Angry Independent said...

Ruth,

Yeah... I know that the health sector is not completely immune... a couple of years ago... we had a hospital shut down in St. Louis (at a time when hospital space was needed). And about 12 years ago... the last remaining public hospital in the St. Louis area closed.

There is also a problem with Level 1 Trauma Centers shutting down due to the lack of money.

But my point was that relatively speaking... in a recession.. the Healthcare industry tends to be much more insulated.

Regarding green jobs... yes... he says he's going to create these jobs... but I have yet to see the fine print as to how he plans to do it. The Government isn't going to create these jobs directly... so it will have to be done through private industry. This will require the Government to spur the creation of entire companies & even develop new industries that are still in their infancy and that can't possibly create tens of thousands of jobs just yet. Simply providing incentives to existing companies won't come anywhere close to getting the job done. So I would love to know exactly how he's going to do all of this.

Regarding the SBA... I thought about that as well... and you could probably have both. But there would still be a need for a new entity IMO.... because the task will be huge... and there will be other needs that the SBA may not be the best at delivering... such as the awarding of government grants and contracts, R&D, dealing with big businesses, etc. This is about the creation of entirely new industries...rather than just the creation of individual small businesses. The Government should have an organization that could do all of this on a centralized...all-in-one basis.

The risk is that Obama's plan may not go far enough in the area of sustainable job creation. The plan is good at spending a lot of tax money... but the question is- is that money being directed to where it needs to go in order to get the desired results?

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