An Economy on the Rebound

When President Barack Obama took the oath of office on January 20, 2009, the U.S. economy was in free fall. During the preceding year and half, some of the nation’s largest and most important financial institutions went bankrupt, including Bear Stearns, Countrywide, and Lehman Brothers, as risky loans and other investments failed. Many other large banks were on the verge of collapse. The downfall of the financial sector had been preceded by a spectacular end to a massive speculative housing bubble that almost instantly wiped out trillions of dollars of Americans’ net worth. When Lehman Brothers and AIG went into bankruptcy during the same weekend in September 2008, panic ensued all across the economy. It felt like 1929 all over again. The Troubled Asset Relief Program (TARP), which was signed into law by President George W. Bush and was implemented by President Obama, stopped the bleeding in the financial sector, but the damage to the broader economy had already been done as other sectors of the economy continued to rapidly deteriorate. The stock markets plummeted, losing more than half of their peak market capitalization just six weeks after Obama took office. Many retirees and workers nearing retirement saw their investment portfolio lose much of its value. Millions of people lost their jobs due to no fault of their own after the U.S. entered a recession in December 2007. Over 1.2 million Americans were laid off between the election and Obama’s inauguration. All told, the Bureau of Labor Statistics estimates that 8.7 million jobs were lost due to the Great Recession. No president since Franklin D. Roosevelt has begun their tenure in the White House under such dire circumstances. An evaluation of each segment of the economy around the time Obama took office compared to now shows that we are definitely better off four years later.

WhichMitt.com Part 2

I recently posted two video clips of Mitt Romney contradicting himself on economic stimulus and President Obama's health care reform bill. While most politicians' views on various issues change a little over time, Romney's shift on these issues was a complete 180 degree shift and only occurred since Obama has been in office. The Republican Party has carefully crafted their message of opposition to Obama. They have taken great pains to paint his actions as that of a reckless socialist, as big government overreach. And they have specifically targeted President Obama's Recovery and Affordable Health Care Acts as the preeminent examples of such overreach. In other words, opposition to government economic stimulus and health care reform form the core of the GOP's argument against Obama's Presidency!

How can the GOP claim that it seeks to repeal the Affordable Health Care Act if the GOP frontrunner, Mitt Romney, is the architect of a plan that is almost identical to the one Obama signed into law? This is compounded by Romney's quote in the video below where he acknowledges applying a similar program at a national level would be a good idea. How can Republicans claim that economic stimulus act destroyed our economy and aggravated the recession when the GOP frontrunner supported the notion of economic stimulus in the form of government spending in 2008 at the height of the recession? Any Republican who supports a politician like Romney but attacks Obama for these signature pieces of legislation is guilty of immense intellectual honesty.

WhichMitt.com

WhichMitt.com is a hilarious website put out by the DNC. Take the quiz! Mitt Romney's constantly changing opinions make him a really easy target. This highlights his contradictions on abortion, the need for an economic stimulus plan during the current recession, health care, and more. Romney's penchant for flip-flopping makes John Kerry look like an anchor of resolve.

Here are a few of the infamous Romney quotes:

On economic stimulus:



“I think there is need for economic stimulus. Americans have lost about $11 trillion in net worth … And government can help make that up in a very difficult time.” [CNN, Late Edition, 1/4/09]

“I have never supported the President's Recovery Act... No time, no where, no how have I supported the President's stimulus.” [Romney Town Hall, Goffstown NH, 9/28/11]

On the need for a national health care plan:



In Massachusetts, “[I] was able to put in place a plan that helped get health insurance premiums down, and gets all of our citizens insured. If we can do that nationally, we help ... the entire nation.” [CNN, 1/14/08]

“One thing I’d never do is impose a state’s plan on the entire nation, that makes no sense. I’ll repeal Obamacare.” [Romney Q&A, Andover NH, 7/4/11]

Where Did All That Debt Come From?

I've intended since the spring to write about our country's current fiscal situation and how we arrived here. For months, Congressional Republicans have been asserting that our federal government does not have a revenue problem, it has a spending problem, and have argued for draconian spending cuts largely aimed at programs that benefit the middle class. And President Obama and many Democrats have largely conceded to the GOP on the issue, allowing them frame the debate about our economic woes as being the result of a large federal debt and ongoing budget deficit. Polling shows that a large majority of Americans blame our country's budget woes on wasteful government spending. However, it is critical to examine our country's fiscal policy during the past decade, to fully understand why our deficit and debt have become so large. The data show that the current budget deficit is primarily the result of 3 factors:

• Significantly decreased federal tax revenue due to the 2001 and 2003 Bush tax cuts for the wealthy;
• The wars in Iraq and Afghanistan, and other post-9/11 defense and security spending, which have added trillions of dollars in new debt;
• And more recently, the financial crisis of 2008 and recession have led to a dramatic decease in the amount of tax revenue coming into the U.S. Treasury (estimated to have increased the debt by $3.6 trillion).

The Stimulus Act Bargain

A point was made a few months ago about the Recovery and Reinvestment Act of 2009 (a.k.a. Obama's economic stimulus plan) that really made a lot of sense to me. Most of us probably recall the tragic I-35 bridge collapse in Minneapolis in 2007. The cause of the bridge was due to a faulty design-- the use of under-sized gusset plates-- and an excessive amount of concrete overloading the bridge. The Federal Highway Administration advised shortly thereafter that there were about 700 other U.S. bridges of similar construction and asked states to inspect them. The Society of Civil Engineers recently gave our U.S. infrastructure an overall "D" grade, indicating that in many cases, our roads, bridges, and other vital infrastructure are in dire need of upgrades. I fear we will have more I-35 bridge scenarios in the future because our current national political dialogue is overly focused on deficits, repealing the health care bill (which will increase the deficit), and other distractions.

In "Infrastructure: the best deal in the economy," Ezra Klein noted how many argue that government should be run more like a business. He then asked rhetorically,

So imagine you are CEO of the government. Your bridges are crumbling. Your schools are falling apart. Your air traffic control system doesn't even use GPS. The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades... There's good news... Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago -- or is likely to go five years from now. So what do you do? If you're thinking like a CEO, the answer is easy: You invest. You get it done.

Obama's stimulus plan did precisely that, although many economists have argued that the stimulus act's overall size, and its investment in infrastructure did not go far enough. But given the political climate at the time, that was probably the best the administration could do. Klein goes on:

When the feds checked in on the [stimulus act's infrastructure improvement] funds, what they found shocked them. The project costs were coming in at 18 to 20 percent less than estimated. The Transportation Department then looked at the share that went to the Federal Aviation Administration for runway repairs. The money that the FAA had thought would complete 300 projects was going to finish 367 projects -- about 20 percent more than projected.

But what about the debt, you might ask? Well, what about it? Delaying a dollar of needed infrastructure repairs is no different than racking up a dollar of debt. "You run a deficit both when you borrow money and when you defer maintenance that needs to be done," [the chairman of the National Economic Council] said. "Either way, you're imposing a cost on future generations."

When we delay maintenance, infrastructure deteriorates even further, thus increasing future repair costs. It is key to understand here that an improved national infrastructure makes our economy healthier in the long run. Without adequate infrastructure, future economic growth will certainly be stunted. The problem goes beyond crumbling roads and bridges, but also applies to antiquated power grids, limited broadband Internet access, outdated air traffic control systems, and decaying schools. While passing the stimulus act in the middle of a recession may have been unpopular, as I pointed out in an earlier post about recession economics, severe recessions are just about the only time it is in fact advisable for governments to incur large debts.

I'm glad the administration had the courage to do what was right at a time when it was politically unpopular to pass the stimulus plan. However, more investment in our infrastructure is needed and there is no better time to do it than now.

An Act with a Vision for the Future

Even prior to its enactment, there has been much heated opposition to the American Recovery and Reinvestment Act of 2009, a.k.a. President Obama's economic stimulus plan. Opponents have tried to smear it as a bill laden with earmarks (which is not true) that wasted money on pointless projects. Opponents have also (correctly) pointed out that it is mostly paid with borrowed money (I'll come to that later). However, the Recovery Act has gone further than any prior piece of legislation in the past half century in revolutionizing antiquated areas of our economy. And it truly has kept the economy from the brink of depression.

Perhaps the keystone effort of the stimulus plan was its investment in a variety of projects that will make America more energy efficient and less dependent on carbon fuels (and the despotic regimes that supply us with them.) One of my key concerns in the 2008 Presidential Election was selecting a candidate who would make energy independence their priority. This act was a big step in the right direction for a green energy economy and the investments it makes in new technologies has the potential to create tens of millions of jobs.

The notion that private corporations are primarily interested in the short term (to satisfy shareholders) and do not invest nearly enough in research and development that would primarily provide benefits in the long run is a well-established economic idea. Some of the most important inventions of the past 100 years, that are the backbone of today's economy, have been supported by government-funded research. The cellular phone, computers, the Internet, and GPS are but a few of the most important inventions that have come about in large part due to research performed by U.S. taxpayer-funded scientists and engineers. Corporate America's fiercest foreign competition significantly benefits from foreign government-sponsored research and development. A good example of this is Airbus, which is a consortium of French, British, German, and Spanish aerospace companies, that have received very heavy investment from their respective governments. As a result of all of the R&D and other investment European taxpayers made into Airbus, that company has now surpassed Boeing as the world's largest supplier of commercial airliners and has provided an incredible amount of high tech jobs to those countries. Perhaps the most important idea I learned in studying economics is the fact that more than anything else, new technology drives economic growth. Many if not most of the jobs lost during the Great Recession are not coming back. The way to get America back on its feet is to develop the technologies that will be the backbone of the future economy. We have plenty of tough competition. Europe, China, and India all invest a significant amount of money in research and development in support of their key industries. If America wants to lead in and reap the benefits of the future global economy, we must ensure we invest money into today's research that will be tomorrow's must-have technology. I cannot think of a better use of my tax dollars.

So in returning to the Recovery Act, a recent TIME Magazine article gave an impressive summary of what types of energy investments the Recovery Act is making.

The investments extend all along the food chain. A brave new world of electric cars powered by coal plants could be dirtier than the oil-soaked status quo, so the stimulus includes an unheard-of $3.4 billion for clean-coal projects aiming to sequester or reuse carbon. There are also lucrative loan guarantees for constructing the first American nuclear plants in three decades. And after the credit crunch froze financing for green energy, stimulus cash has fueled a comeback, putting the U.S. on track to exceed Obama's goal of doubling renewable power by 2012. The wind industry added a record 10,000 megawatts in 2009. The stimulus is also supporting the nation's largest photovoltaic solar plant, in Florida, and what will be the world's two largest solar thermal plants, in Arizona and California, plus thousands of solar installations on homes and buildings.

The stimulus is helping scores of manufacturers of wind turbines and solar products expand as well, but today's grid can only handle so much wind and solar. A key problem is connecting remote wind farms to population centers, so there are billions of dollars for new transmission lines. Then there is the need to find storage capacity for when it isn't windy or sunny outside. The current grid is like a phone system without voice mail, a just-in-time network where power is wasted if it doesn't reach a user the moment it's generated. That's why the Recovery Act is funding dozens of smart-grid approaches.

The Recovery Act's clean-energy push is designed not only to reduce our old economy dependence on fossil fuels that broil the planet, blacken the Gulf and strengthen foreign petro-thugs but also to avoid replacing it with a new economy that is just as dependent on foreign countries for technology and manufacturing. Last year, exactly two U.S. factories made advanced batteries for electric vehicles. The stimulus will create 30 new ones, expanding U.S. production capacity from 1% of the global market to 20%, supporting half a million plug-ins and hybrids. The idea is as old as land-grant colleges: to use tax dollars as an engine of innovation.

Recovery Act money was also used as follows:

- Tax cuts for 95% of working Americans (Federal taxes now are at the lowest rates they've been in over 50 years for middle class Americans, so please remind me what Tea Partiers are complaining about again?)
- Bailed out most state governments to avoid laying off hundreds of thousands of school teachers, police officers, fire fighters, and other state and local officials.
- Provided record amounts of unemployment benefits to record numbers of unemployed workers.
- Funded upgrades to roads, bridges (recall the Minneapolis I-35 bridge collapse), schools, airports (ever flown through JFK?), military bases (recall reports about the decrepit Fort Bragg barracks, among others).
- Computerized paper health care records system (to reduce redundant tests and errors caused by doctors with bad handwriting).
- Invested in public transportation, including high speed rails.

This act provided for a smart balance of near-term projects to help prevent the economy from suffering a complete and utter collapse while assisting those most vulnerable in the Great Recession (the unemployed) along with long-term investment that would lay the groundwork for our future economy. As Kristin Mayes, the Republican chair of Arizona's utility commission stated, "It will leverage a very different energy future... it really moves us toward a tipping point." As an older post pointed out, there are key economic indicators that indicate we have stepped back from the brink and are moving in the right direction.

Despite all of the carping by the Tea Party types about the federal deficit and its contribution from the Recovery Act, the non-partisan Congressional Budget Office has indicated that the Bush tax cuts are the single biggest contributor to the structural deficit. (Extending the Bush tax cuts would add $2.3 trillion to the 2018 debt. I really hate the term "Bush tax cut" because they really were not tax cuts, but tax deferrals as they were paid for with credit. Congress and former President Bush essentially extended America a loan that would need to be paid for by our children.) The next biggest contributor to the long-term deficit are the two current wars. While the Bush Administration initially estimated that the Iraq War's cost would be less than $100 billion, latest estimates are that it will be over $3 trillion. Has the Recovery Act contributed to the deficit? Of course it has. However, a concept that was taught to me by multiple economics professors at the not-at-all-liberal Brigham Young University was that truly the only time deficit spending by a government is warranted is in the case of a severe economic recession (which we were in), in order to stimulate the economy. These not-at-all-liberal BYU economics professors also supported a volume of economic data and research that indicates such stimulus spending helped the economy recover during the Great Depression.

So the next time a FOX News pundit laments how your tax dollars were completely wasted in the "stimulus act" and that it had no net affect, you'll know their argument is hogwash.