Obama's Stimulus Plan: A Foundation for Growth?

By Adam Solomon Zemel. Cross-posted from the Breakthrough Institute

In Northern Virginia today, President-elect Barack Obama addressed the nation, introducing a few basic goals and guidelines for an economic stimulus package that could cost as much as a trillion dollars.

Well aware that the large price tag on the stimulus, referred to as the "American Recovery and Reinvestment Plan," Obama included language about setting a foundation for economic growth now in order to return to a place of fiscal responsibility as the economy gets back on his feet. However, Obama was not shy about the need for the government to step in and spend, now:

"It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy - where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit."

Obama's plans consist of programs for immediate relief and long term economic revitalization in six key areas:

"To finally spark the creation of a clean energy economy, we will double the production of alternative energy in the next three years."

• Energy. Obama spoke about expanding America's production of alternative energy over the coming years, doubling its capacity by 2012. He also spoke about putting Americans to work retrofitting and weatherizing at least 75% of government buildings and 2 million homes to be more efficient. He also spoke about creating a dynamic and innovative alternative energy sector in America, saying, "we will put Americans to work in new jobs that pay well and can't be outsourced... and developing the new energy technologies that will lead to even more jobs, more savings, and a cleaner, safer planet in the bargain."

"To build an economy that can lead this future, we will begin to rebuild America."

• Infrastructure. Referring to his infrastructure plans as "not just another public works program," Obama did say that part of the infrastructure spending would go to rebuilding roads and bridges and executing worthy and well-planned public works projects. However, Obama's framed these infrastructure investments as primarily about retrofitting America to compete in a 21st century global economy. This included the construction of a unified national smart grid that "will save us money, protect our power sources from blackout or attack, and deliver clean, alternative forms of energy to every corner of our nation." In addition, the President-elect mentioned the need to expand broadband across America, to rural areas and small towns.

"And it means investing in the science, research, and technology that will lead to new medical breakthroughs, new discoveries, and entire new industries."

• Innovation. Obama also spoke of the need to build a new innovation infrastructure, saying he would invest in R&D to promote economic growth and breakthroughs that will create broad-based prosperity. Hopefully, Obama will pursue a robust innovation policy seriously, as technology and science innovations, along with increasing productivity, can create entire new industries and sectors of the economy.

"To improve the quality of our health care while lowering its cost, we will make the immediate investments necessary to ensure that within five years, all of America's medical records are computerized."

• Healthcare. Obama confined his healthcare ideas to digitizing medical records. Not only will it reduce wasteful spending, he argued, but it will cut back on treatment errors, saving lives and creating a healthier America.

"To give our children the chance to live out their dreams in a world that's never been more competitive, we will equip tens of thousands of schools."

• Education. Modernizing schools with new technologies and computers, along with new training for teachers, will play a role in the stimulus, ensuring the long term competitiveness of America's up and coming generations. Obama spoke about bringing 21st Century classrooms, labs and libraries to America's public schools, community colleges and public universities, "so that students in Chicago and Boston can compete with kids in Beijing for the high-tech, high-wage jobs of the future."

"Finally, this recovery and reinvestment plan will provide immediate relief to states, workers, and families who are bearing the brunt of this recession."

• States and Citizens. The proposed stimulus plan would include a $1,000 tax cut for 95% of working families, the first stage of tax cuts that Obama pledged to make during his campaign. Obama also spoke about extending unemployment insurance and health care coverage to those who have already lost jobs and are having trouble reentering the workforce. And, while he said that governments would have to "tighten their belts," the federal government would also step in to avoid harmful budget cuts to states so that they can keep their public sector workers employed.

While Obama outlined a solid framework for stimulus and recovery, as usual, the devil is in the details, and the President-elect's speech was lacking in that capacity. For example, what does he have in mind when he talks about "alternative energy?" Is he only referring to the electricity sector, or does he have transportation and heating fuels in mind as well? Will doubling America's capacity for "alternative energy" include increasing the production of coal-fired power plants using carbon capture and storage technology? Does the baseline we're doubling from include hydropower? If hydropower is included, Obama is pledging to take "alternative energy" to around 20% of US electricity supply; if it's not we'll be taking it to just 7% of US electricity supply, so nuances like this can clearly make a big difference in the way we parse Obama's speech today.

Obama also provided very little specificity as to the policy tools he plans to use to accomplish these priorities. Will he beef up the clean energy production tax credit, or will the government invest directly in the production of energy with financing, procurement and fully refundable credits?

The lack of specificity in today's speech likely indicates that Obama still has a lot of details to work out with Congress, and it'll be important to watch as these details are unveiled in the weeks ahead.

But for what it was--a political speech laying the groundwork for Obama's vision of governance, it was a reassuring sign that the President-elect has the right objectives for stimulus spending. Obama identified six areas of domestic policy in which he would prioritize expending his political capital, each framed centrally around an effort to use stimulus spending to lay the groundwork for sustained economic growth. Investments in clean energy technology, innovation and R&D, critical public infrastructure like a unified national smart grid and broadband networks, digitizing medical records, building modern schools and research facilities, and helping out state budgets are all smart investments that create both short-term economic stimulus and lay the groundwork for long-term productivity and economic competitiveness.

He also included language about bipartisanship, and worked to appease perhaps his biggest barrier to a sizable stimulus plan, Congress's Blue Dogs. This faction of moderate Democrats from centrist districts who preach fiscal responsibility and adherence to pay-as-you-go fiscal standards seem receptive to Obama, and have already started rallying behind the stimulus.

Perhaps most importantly, Obama identified a vision for a brighter American future - a nation prosperous again, more competitive in a global 21st century economy, and powered by a cleaner, more efficient energy system - and then sketched out a plan that will put us on the road to that future. And, with Speaker Pelosi already saying that Congress will not be taking a recess until an economic stimulus bill has been passed into law, it seems that we might be starting down that road sooner rather than later.