Cash For Clunkers was a federal program that subsidized car down-payments for qualified citizens.  In order to qualify, your old car must fall below certain emission standards; and you must agree to purchase a new, greener model.  Customers receive vouchers worth between $3500 and $4500 dollars.  Since its initial inception, over 500,000 cars have been sold.

The program was so successful, that Congress approved more money, which brought the program’s total to three-billion dollars to continue funding it.  Due to the brisk pace of sales, Congress was forced to end the program on August 24^th.  Many last minute car buyers were turned away because overworked dealers would be unable to make the paperwork deadline.

While this could be considered an example of a successful, government implemented plan, the Cash For Clunkers program was not without detractors.  Calling the program a “government handout” and “bloated, and wasteful”, many conservatives believe the program was another form of ineffectual governing by the Obama administration.  However, the popularity of the program belies the criticism.

Exchanging gas guzzling, outmoded cars for newer fuel-efficient models, providing a temporary stimulus to a lagging economy, and saving dozens of struggling dealerships from going out of business, would normally be met with waves of effusive praise.

However, there are some who have a financial and political stake in proving that the government is incapable of successfully administering a program.  While the Cash For Clunkers program is not the solution to all of our economic woes, it does demonstrate that there is popular support for effective and innovative, government led solutions to some of our common problems.

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Mr. Obama’s economic advisors have been promoting the few small gains that the economy is currently making.  A rapidly rising stock market and a modest uptick in home sales, coupled with an economy that only shrank by 1% last quarter, would normally not qualify as good news.

Yet, in these dismal economic times, facing stiff opposition from Congressional Republicans and Blue Dog Democrats, Mr. Obama’s administration finds it necessary to push back against a pervasive background of hand-wringing and teeth gnashing.

While stating that economic recover is nigh, President Obama also cautions that the road to recovery will be a rough and arduous one.  With economic losses topping $14 trillion dollars, many people are anxious for the recovery to begin.  However, with unemployment expected to rise above 10% and strong resistance to a proposed second stimulus, the road to recovery may be longer than we are currently being led to believe.

Determining how much of a role the economic stimulus package played in achieving these modest gains is difficult to determine.  The data is very complicated and hard to sort.  Some economic experts argue that the economy only experienced modest shrinkage because the stimulus money helped stave off many layoffs at the state level.

In addition, increased unemployment benefits, a one time payment to social security recipients, and a tax credit also contributed to modest gains in disposable income.  Yet, the impact of the stimulus money may have already reached its peak, and any further benefits might be negligible.

Most economists agree that the country is in uncharted waters; and the immediate and distant future of the economy is hard to predict.  Our long national nightmare continues, while the morning is still a few hours away.

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The news from throughout the country has been discouraging.  Unemployment hit 9.5%, while real unemployment hovers around 16.5%.  Over two million jobs have been lost since Mr. Obama took office.  Foreclosures are rising, while economists expect 1.5 million people to file bankruptcy this year.  Many states are facing severe fiscal crises, with California being on the verge of bankruptcy.

Facing such dismal news, Vice President Joe Biden was forced to concede on ABC’s This Week that the Obama administration had misread how bad the economy was.  However, Mr. Biden, among other administration officials, believe that it is too premature to begin crafting a second stimulus, considering only 10% of the $787 billion in stimulus funds have been distributed thus far.

In addition, many have been disappointed by the Obama’s administration’s proposal to regulate financial institutions.  While the plan has definite merits, it fails to rein in those people and institutions most responsible for the financial meltdown.

Mr. Obama’s plan does give the Federal Reserve the power to regulate any systemically important institutions, such as Lehman Brothers and Bear Stearns.  The Federal Reserve would also have the power to seize any insolvent institutions.  While these are very important and much needed steps, they fail to address any meaningful preventative measures.  His plan lacks teeth.

The “hindsight is 20/20″ and “Monday morning quarterback” analogies do not work well here.  Many prominent economists warned that in order to truly fix the economy the adminstration would have to pass an adequate stimulus and rein in Wall Street excess.

It is becoming painfully apparent that the stimulus will have a limited impact on the economy.  While Wall Street has not quite returned to business as usual, Mr. Obama’s financial regulation plan provides them with little incentive to remain on their best behavior.  It is important that Mr. Obama not sacrifice the economy in favor of the other big ticket, and vitally important, items on his agenda.

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Here I go again.  I feel the need to explain why, besides the damage they have wrought to the stimulus plan, the Republican push for tax cuts is an ineffectual and misguided economic policy.  Besides a few economists that are friendly with the highly partisan Heritage Foundation, most agree that tax cuts are not an effective way to stimulate the economy.

Considering how deep the recession is, tax cuts will not lead to consumption.  The reason why the recession is deepening is because we have entered the period when people are not spending money, which leads to a decrease in demand.  This decrease in demand leads to people being laid off in order for the companies to remain solvent.  Supposing that every American spends every cent of their $500 tax cut, consumer spending still would not bridge the gap in GDP.  Rather, we have increased our future debt load by implementing a tax cut that will do nothing to end this recession.

Targeted tax cuts should be an essential part of any stimulus plan.  However, the tax rebates of 2001 and 2008 proved that tax cuts alone will not help us get out of this mess.  Congress needs to invest massive amounts money into critical infrastructure, which has been neglected for over 30 years.  However, the debate has shifted over the last month.  Paul Krugman predicted how the Republicans would shift the debate would about a month ago.  He also explained much better than I can why these tax cuts won’t work.  Some part of me really wants to believe that this Republican stand is really based on principle.  But I know, in my head and in my gut, that many of them either do not really have a grasp on how economics work, or the ones that do have no interest in helping us recover.  Either way, the Democrats and President Obama must take a stand and fight against these provisions that will harm us greatly over the long run.

You can find tons of excellent information about the problems with these proposed tax cuts here, here, and here.

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President Obama’s stimulus plan passed in the House of Representatives with no Republican votes.  Now the bill must pass the Senate before it goes to a Conference committee.  Once it leaves Conference Committee, the final version will be voted on by both the House and Senate.

Thus, it is very likely that the current bill will undergo more changes before Mr. Obama signs it into law.  Considering the concessions that the Democrats made to appease Republicans, and the Republicans commitment to being obstructionists, one can only hope that we may get a better bill.  However, the stimulus plan as it stands is a less than stellar piece of legislation.

The stimulus package in its current incarnation will cost approximately $819 billion dollars.  A partial breakdown follows:

• The House has allotted $322 billion dollars for infrastructure such as, construction projects, education and school upgrades, renewable energy research, and scientific and technological research.  Once again, the emphasis is on projects that are already budgeted and ready to break ground.  Modernizing schools and health care information systems are excellent ideas.
  Yet, at $322 billion, these projects are woefully underfunded and suffer from a crippling lack of progressive vision.  To give you an idea of how little this amount is, it is less than half of what we have already paid to bail out Wall Street and the banks.

• The stimulus plan provides $87 billion dollars for Medicaid so that states do not have to cut benefits in the face of budget shortfalls.  In addition, $43 billion has been allotted to increase and extend unemployment benefits.  The Cobra health care plan will receive $39 billion dollars, which will allow the government to cover 65% of an individuals Cobra costs even though they may have lost their job.  In addition, the stimulus will provide more money for social safety net programs such as food stamps.

• Tax cuts account for approximately $275 billion dollars.  Over $145 billion will go to a middle class tax cut.  Single workers making less than $75,000 will get a $500 tax break, while couples making less than $150,000 will get a $1,000 tax cut.  There is a lower income tax cut that amounts to $15 billion dollars.  This will expand the EITC for many low income workers who do not pay taxes.  Lastly, the bill provides for $17 billion in corporate tax cuts.

The stimulus plan is still in flux.  The Senate has already proposed another $80 billion in tax cuts.  What is obvious is that the Republicans have effectively changed the terms of the debate.  A proposed stimulus package that was considered  too small to adequately jump start the economy is now considered too big.  Past the political posturing, it will be us, who ultimately pay the price for a botched plan.

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What has brought me to the point where I am echoing obstructionist Republicans, albeit for very different reasons?  The Republicans are currently seeking to completely derail the proposed stimulus package.

However, they know that they do not have the numbers in Congress to block the stimulus plan’s inevitable passage.  No, I believe that what they are doing is much more insidious.  Criticism from the Left, while muted, has focused on the relatively narrow scope of the plan.  The plan is actually TOO SMALL to adequately jump start the economy.

However, the Republicans are arguing that the plan they initially supported, is now too pork-laden and bloated to actually help the economy recover.  The party adding ineffective, politically motivated pork to the bill are the Republicans in the form of tax cuts.  Yet, the Republicans are employing a common negotiating technique that appears to be working.

When negotiating, you make an outrageous offer in hopes of getting the merchant to agree to the price you were always willing to pay.  Instead of discussing the limitations of the original stimulus plan, the Republicans are succeeding in watering down further an already weak proposal.

Congress Reading From The Same Old Playbook

The original stimulus plan, with its focus on shovel ready infrastructure projects, was flawed from the beginning.  The plan as it stands now will not create jobs fast enough to keep pace with the exploding unemployment rate.  Tax cuts have proven ineffectual at stimulating consumer spending because people are paying off debts and saving their money.

The Republicans have succeeded in adding more tax cuts into the Senate portion of the stimulus plan.  Why is President Obama so intent on squandering this historic opportunity on bipartisanship?

Especially when it is readily apparent that the Republicans do not give a damn that he won a mandate from the American people to fix this broken economy?  I have been railing against the limitations of the stimulus plan, hoping against hope that there would be bolder action to follow.

Watching the Democrats cave yet again, I can only shake my head in dismay and despair.  With the best numbers in a generation, they still lack the wherewithal to act boldly on behalf of a country in desperate straits.

Together, We Can Overcome

Why won’t the stimulus plan work?  Is it a case of too many chefs in the kitchen?  Is it a lack of political will?  I believe that a combination of Republican obstructionism, coupled with a Democratic dearth of will, will make the final bill ineffectual at best and a magnificent waste of resources and goodwill at worst.

It is a brave new world.  It has become evident that those entrusted with the reins of power have no idea what they are doing.  We must bind together as a community now more than ever.

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The idea of owning a home is in many ways integral to the American Dream. The notion of property ownership conveys the idea that you have a stake in the future of the country. Those with a vested interest are more apt to do what is required to protect their investment. However, the rapid deflation of the housing bubble has had a chilling effect on the housing market. According to many bankers and economists, there is a real possibility that banks have a large number of unlisted foreclosed properties on their books. As they begin to slowly list what properties are on their “ghost inventories“, housing prices will drop even more. The sheer overload of foreclosed homes leads to a lag between repossession and a house being placed back on the market. The enormous number of properties, coupled with severely depressed prices, leads to a logical consideration, “Should I buy a foreclosed home?”

During the height of the housing bubble, owning a home was seen as a better investment than owning stock. Rather than appreciating whatever inherent value homeownership has, people became merely concerned with how much their house appreciated.  Even now, realty investors are buying property with the notion that housing prices will eventually rebound. However, economists believe that this adjustment will last well into 2010. When prices do climb again, it is unlikely that they will reach 2003-2006 levels.

Before you decide whether you should buy a foreclosed home, you should seriously contemplate why you want to own a home. As far as the market is concerned, housing prices are expected to bottom out within the next 6-9 months. Unfortunately, because of the credit crunch, you need a high credit rating or large down payment to buy a home in this climate. Financial planners are attempting to debunk the myth that homes are a good (monetary) investment. Others are lauding the value of renting over purchasing.  Taking these points into consideration, it is quite possible to buy your dream home at a substantial discount.

It feels strange to profit from another person’s misfortune. Yet, there are literally millions of vacant homes flooding the market. If you have reasonable expectations of homeownership and an understanding of the benefits and limitations of owning a home, there are values to be found everywhere. Should you buy a foreclosed home? If you can truly afford to buy a home, the time has never been better.

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Unfortunately, we have become accustomed to American economic, cultural, and military dominance.  We have accepted these predetermined outcomes without giving much thought as to how we would continue our reign at the top of the global heap.

Now, we are at the brink of financial disaster.  We have a young, vibrant, technology savvy President-Elect, who speaks of dragging America into the 21st century.  Before the election, the pundit class was in titters about how the incoming president’s agenda would be hamstrung by the recession.

However, now that it is apparent that the government must spend tremendous sums of money in order to prop up the economy, Mr. Obama and his surrogates see an opportunity amidst the chaos.  Regrettably, their vision is narrow-minded and uninspired.  Bricks and mortar, “shovel-ready” projects are integral.

Yet, in order for this country to stride into the Digital Age instead of lurching its way towards the past, we must move past outmoded thinking and invest in truly transformative projects.

Broadband

Fiber-optic wires

In order to remain competitive, the United States needs to make high-speed internet access an integral part of its infrastructure.  There are already private advocacy groups and politicians that recognize the urgent need for universal broadband access.  The current figures are rather embarrassing.  The United States currently ranks #15 in average broadband speeds, averaging approximately 2.3 mbps.

Korea averages 49 mbps, while Japan averages approximately 64 mbps.  Extending broadband access to disparate areas of the county and laying down the fiber optic wires necessary for the highest speeds is too cost-prohibitive for private industry right now.

On the other hand, this is the perfect large-scale, progressive infrastructure project ripe for government investment.  High-speed internet access will launch us into the 21st century and put us on firm footing for the Digital Age.

The technological revolution that broadband can unleash will spur us toward more creativity, innovation, and open up new markets.

High-speed Rail

The Future of Travel

President-Elect Obama has continuously stated that pushing America into a green economy is one of his top priorities.

However, there is very little in the current stimulus package that addresses these goals in comprehensive detail with long-term plans and projections.  One of the most promising but underfunded proposals is high-speed rail.

Some of the immediate benefits of building high-speed rail corridors include, alleviating the environmental stresses caused by traditional road and highway travel, lowered energy consumption, and low operational costs.

In addition, high-speed rail is faster, while offering more capacity and better efficiency for shorter trips between non-hub cities.  Research has been completed on the 11 corridors that could benefit the most from a high-speed railway system.

Because of this crucial groundwork, the United States Department of Transportation has solicited proposals for these potential high-speed corridors.  Previously, many considered the benefits of high-speed rail too minimal and the cost too prohibitive for private investment or government involvement.

To build a high-speed rail system for the California corridor, which goes from Los Angeles to San Francisco, would cost approximately $34 billion dollars.  However, this is the type of green infrastructure project that would transform the way people live, work, and travel.  A high-speed rail system would be a tremendous down payment on our environmental future.

As an expensive project that has long-term structural and environmental benefits, high-speed rail funding should be a vital part of the the stimulus package.

Wireless Energy Transmission

"UNLIMITED POOWWWERRRR!"

From the realms of science fiction comes wireless energy transmission.  While the science is complicated, the premise is not.  Energy, specifically electricity, once generated would be wirelessly transmitted to any number of storage satellites.

This electricity can then be wirelessly transmitted to any location on the planet.  The concept runs parallel to any number of wireless innovations with which we have become comfortable.

Traditional means of delivering electricity generally wastes between 20-25% of the electricity in transit.  By implementing this technology, we could rid our landscape of wires and cables, while creating a more cost-effective and efficient delivery system.

Green technologies would become instantly viable because transmission, storage, and delivery would no longer be a hindrance.  The Department of Energy stated that this technology is currently not cost-effective.

However, this is the sort of high profile, forward-thinking innovation that has revolutionized American industry in the past.  Moreover, these are the kind of projects that will propel us into the future.

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The key to understanding the proposed benefits and limitations of the proposed stimulus plan lies in grasping the basic tenets of Keynesian economics.  Keynes’s theories began to fade in popularity towards the end of the seventies.

For nearly thirty years, businesses and investors lobbied for market deregulation; and government played a minimal role in monitoring the activities of the private sector.

While inner cities became desolate, bridges and roads crumbled, and schools deteriorated, the income gap expanded at the expense of the middle and working classes, bubbles grew and burst, and the country now finds its financial markets pushed to the very brink.  Currently, many economists are arguing that the resurgence of Keynesian economic policies is the only thing that will stave off a depression and lift us out of this already deep recession.

John Maynard Keynes

Who Was Keynes?

John Maynard Keynes was a born in Britain in 1887.  As one of the most prominent economists of his day, Keynes served the British government in a variety of positions.  From setting monetary policy, to being a representative at the Treaty of Versailles, Keynes was able to find numerous practical applications for his economic theories.

It was during the middle of the Great Depression that Keynes wrote his magnum opus, General Theory of Employment Interest, and Money.  Published in 1936, this book is considered the foundation of macroeconomics.

Tenets of Keynesian Economics

Keynesian economics is centered around the premise that governments should play an active role in promoting economic policy and regulating the private sector.  Keynes believed that modern capitalist economic policies will not find an appropriate balance between the public and private sectors because capitalists will always push for less regulation and more unfettered access to markets.

Rather than a strict focus on deficit spending, Keynes’s policies are more counter-intuitive.  Keynes supported doing what is considered contrary in business cycle contractions.  Of primary concern to us, Keynes argued that during recessions/depressions, governments should make up for the loss in aggregate demand.  Let’s examine how this would play out in our current recession.

Keynesian Economics and the Recession of 2008/2009

We are in the part of our recession where job instability leads to depressed consumer demand.  Depressed consumer demand leads to decreasing prices and companies needing fewer “supplies”.  Thus, businesses cut production, fire workers, and reduce hours in order to maintain some semblance of a bottom line.

The cycle repeats itself until consumption and production grind to a halt.  Economists recognize that consumers are not going to spend their way out of this recession.  Keynesian economics contends that governments must either increase the money supply or stimulate production by purchasing goods and services.

This resurgence in Keynesian relevance began with the nationalization of Fannie Mae and Freddie Mac and continued with the initial bailout of the financial markets.  Keynes’s resurgence was further evidenced within the broad outlines of Mr. Obama’s proposed economic stimulus plan and the near unanimous agreement that such a plan is needed.

Of course everyone is arguing over the size and the scope of the plan.  However, not very many people are questioning the need for drastic government intervention in the economy.

The main problem many Keynesian economists have with President-Elect Obama’s plan is that they believe it is insufficient and will not make up for the $2 trillion dollar gap in consumer spending.  Even though they are attempting to influence key portions of Mr. Obama’s proposal, conservatives also understand that passage of the stimulus plan is a foregone conclusion.

John Maynard Keynes is one of the most influential economists of the 20th century.  From the time when his ideas fell out of favor, you can draw a straight line from that point to our current financial crisis.  Since Keynesian economics is providing the basic blueprints to end our current recession, and now that we are at least speaking a common language of recovery, I am a more optimistic that we will see our way out of this crisis.

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