Obama As Helicopter Ben

Barack Obama gave some indication today of the direction he intends to go in order to get the economy back on track once he is in office. In his radio address, he also seemed to signal that he was going to start engaging sooner rather than waiting until after the inauguration.

From the New York Times:

President-elect Barack Obama signaled on Saturday that he would pursue a far more ambitious plan of spending and tax cuts than anything he outlined on the campaign trail, setting the tone for a recovery effort that could absorb and define much of his term.

In the Democrats’ weekly radio address, Mr. Obama said he would direct his economic team to design a two-year stimulus plan with the goal of saving or creating 2.5 million jobs. He called it “a plan big enough to meet the challenges we face.”

While specifics on his tax agenda weren’t forthcoming, speculation is that he will now work out some sort of tax relief plan for low and middle income wage earners, yet defer his promised tax increase for upper income citizens. Any eventual tax increase will be accomplished by letting the Bush tax cuts expire in 2011. This will, of course, not be billed as a tax increase and Congress will be spared the agony of having to go on record in favor of a tax increase. This course would seem to result in a much broader tax increase than he promised during the campaign as the Bush tax cuts were spread across the income spectrum.

The price tag for the stimulus plan is put at $300 billion. Estimates are that this is the opening bid and it could easily be much higher. That begs the question of how he plans to pay for it. Ignoring the cost of the various programs in place or likely to go into place to keep the economy stable, which is kind of like ignoring a very big elephant, tax revenues are going to crater. The recession will certainly devastate income tax revenue and you can kiss capital gains tax revenue goodbye for some time. At the rate that the government is spending money, the issue of who is going to provide it becomes a legitimate question. All the more so if some of the larger sources of capital are so constrained by their own problems or so impoverished by the fall in commodity prices that they can’t continue to buy our bonds.

I’ll leave for another day a discussion about how much good this sort of massive government spending will do. For now, I think that there is a chance that the Obamites might well find that they are more fenced in than they think with respect to their range of policy choices. If we do end up in a world of reduced capital availability, a massive government program might well do as much harm as it does good as it crowds out the private sector. Let’s hope that they have some really good, wise men and women that think all of this through.

(I suppose this will become a routine thing but Obama posted his radio speech on YouTube. Dutifully I have included it below.)

Tom Lindmark

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