The economic stimulus plan that President-Elect Obama is working is estimated to be between $675 and $775 Billion. The stimulus plan will be geared towards job growth and infrastructure. Some have argued that work should be done to increase short-term spending but Obama’s economic stimulus plan looks to have long-term effects. This sounds reasonable as short-term spending would only be a small band-aid at best. We have to move away from this idea that we can spend our way out of trouble!
The administration will look to give money to projects that have a plan to move us away from being energy dependent on other countries as well as projects to help build up schools. If done correctly this could be similar to what was achieved under FDR where many buildings and schools were built during the depression that are in use today.
Getting an economic stimulus package will be the top priority for Obama and his team once they are in office.
But is it enough?
Economics Nobel-Laureate Paul Krugman wonders if we don’t need closer to $1 Trillion. He says:
“I understand that there’s difficulty in actually spending that much money, and I–they’re also afraid of the–of the T word. They’re afraid of a trillion dollar for the two-year number. But you know, the back of my envelope says it takes roughly 200 billion a year to cut the unemployment rate by 1 percent from what it would otherwise be. In the absence of this program, we could very easily be looking at a 10 percent unemployment rate. So you do the math and you say, you know, even these enormous numbers we’re hearing about are probably enough to mitigate but by no means to reverse the slump we’re heading into. So this is–you know, I–they’re thinking about it straight.”
Wow. That is a lot of money. According to Obama, any taxes involved would amount to tax cuts for the middle class with many former tax cuts for wealthier folk repealed.
Clearly we are in the middle of a huge economic situation. Attempts to fix the problem up to now seem to have done little stem the bleeding. But if the money is used well to grow new industry, create long-term jobs, and develop much needed infrastructure then perhaps this can can work.
How do you feel about Obama’s new economic stimulus plan? Is it much needed or a waste of resources?
Firstly, I don’t know how Obama Plans on using this economic stimulus package. I more or less believe that it should go into public projects. This will help build jobs in the short run. I don’t necessarily agree with the taxing situation, however. It will be interesting what the next few years bring…
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@ James – From what I understand money will be going into building infrastructure and schools among other things. This will hopefully build short-term jobs as well as long-term (more schools need more jobs). It will be interesting to see though.
Fred @ Online Banks Blog says
I hate this idea of spending tax money to “spend” our way out of this recession. The Obama administration will choose which companies to give billions of dollars to. Once the money is spent, that is it. It is gone.
We should lower business taxes and regulations to make it more profitable for companies to do business in the United States. Companies are relocating outside this country in order to save money. We need to lower taxes and compete for these jobs.
Sure the government should continue to do infrastructure projects, but don’t go hog wild with the spending. We can’t afford to these huge deficits.
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@ Fred – We do need to make it better for companies to compete. But I’m not sure removing all regulations is the answer either. Look at Wall Street. Perhaps they need different regulation so we don’t have another sub-prime crisis or a Madoff Ponzi scheme? The new administration really needs to look into a lot of different areas to see what can be done.
I think infrastructure can be a long-term help. It’s not just construction that gets a boon. When schools are built they need teachers, administration, janitors, security, a whole slew of people that would have permanent jobs. When roads and bridges are built and made better it makes it easier for commerce to happen across the country.
I understand that money will go to companies that will help develop new energy that will ween our dependence from foreign fuels. Of course we can’t know now which companies these will be and if they will be the right ones but this will help create jobs and new markets as well as help us in the long-run, hopefully.
I do agree that we can’t just blindly spend out way out of this mess. It hasn’t worked up to now. Time will tell how the new administration will work us through this. Right now unemployment is around 6% but it’s said that it can go up to 10%. Let’s hope they make wise choices!
I think that investing in our infrastructure in this country has been needed for a long time. I don’t know any of the details, but our roads, bridges and other infrastructure in this country is very old and needs some work. I think it makes sense to invest in these types of things to fix our country while putting people back to work.
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@pfincome – I agree. A lot can get done with long lasting effects if it’s done correctly.
Colin Howe says
This whole idea of we need to “build roads and bridges” is silly. The last highway funding bill (before stimulus) was over $100 billion. We have been building roads and bridges for quite some time!
Fred @ Online Banks Blog says
It is a very small portion of society that will be employed in these civic construction projects. I know that if I lose my job, these construction jobs would not be jobs for me.
The unemployment in this country is still pretty low. Instead of picking which industries get helped and which do not, why not lower business taxes on all industries.
When government picks winners and losers, everyone’s tax dollars go to a select few. That is the problem with government picking winners and losers. It is like spending money to build football stadiums. I hate it that the government uses my money to buy someone a business.
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Aleksandar M. Velkoski says
How many economic stimulus plans will it take to revive this economy? I’m not saying it’s a bad idea, but I’m not so sure about all of the details just yet, but it seems like what we need is a long-term plan to save this nation. What should the plan be? At this point, beats me. That’s why I’m not in Washington.
@ Aleksander – I’m no economics professor myself. Clearly something needs to be done. We’ll see in the coming weeks more details of what Obama plans to do. I like that he has some big-hitting economic people advising him. That’s a positive sign so far!
I think our infrastructure is definitely the place to invest. There are many of us who can’t work those sorts of jobs, physically. But all those workers will have to be coordinated and scheduled. The coordinators will need personal assistants… It will create jobs that non-construction types can do.
And even if it doesn’t, it will create a lot of jobs which is good for the economy and our trains and such will be somewhat modern.
I wish I knew more details about the plan, obviously, but I think he picked a good area to focus on.
That said, FDR’s programs to create jobs still didn’t end the Depression. It made things somewhat better. But WWII is what really got us out of the economic funk. So we have to be cautious with our hopes.
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@ Abigail – So true on the trickle down effects in upgrading the infrastructure. As for FDR’s plan, I know many schools in NYC were built with government programs that are still in use today. Buildings like the Empire State Building and Chrysler Building were most likely helped with gov’t programs too (I’d have to look them up to know for sure though). Imagine what can get done in the next few years if the money is properly allocated!
Just raise the minimum wage dramatically.
The reason we are in an economic slowdown is the poor and middle class don’t have enough spendable cash.
the fastest and most even way to get money into there hands is dramatically raise the minimum wage to $20.
This will instantly cause dramatic increases in disposable income for the most people and the people most likely to spend it quickly. The resulting sales of good s and services to them will increase employment in many other areas offsetting any job losses caused by increases in minimum wage.
We don’t need consumer to BORROW more . We need them to HAVE more money that they are EARNING.
Additonally going to a single payer universal healthcare system will relieve companies of the tremendous burden of healthcare which companies in other countries don’t have so US corporations would be competitive in the world. Healthcare costs would also go down becuase the percentage of healthcare funds devoted to administration is dramatically lower under government healthcare like medicare than it is in private industry..
@ Geo – Two problems with raising the minimum wage like that: 1) You have to find a way to satisfy those people who already make around $20/hour. Effectively their wages go down while people who made less now make more and 2) You will get massive inflation. As this new money pours in demand for products goes up causing prices to go up. Make a jump like that on minimum wages and you’ll see things like milk prices jump up as well basically canceling out any benefit of increased wages.
Healthcare may be something to explore…
But I agree that we have to stop all this borrowing.
Fred @ Online Banks Blog says
@Geo and @ftb – The real problem with raising minimum wages is that people will lose jobs. When it costs more to hire an employee, some business owners will not be able to afford to continue to employ their employees. When this happens, people get layed off.
This recession isn’t about consumers not having enough money. That is the effect of the recession. The recession is caused by businesses making less money. When businesses make less money they employ less people, cut salaries and cut bonuses.
Unemployment in the U.S. is still very low at 6%. However, employees are not getting raises. They are not getting bonuses. They are afraid of losing their jobs.
You can’t give people money and assume that this will turn around the economy. You need businesses to make new products, increase real market demand sales, and then increase profits.
Once shareholders see a business as a good investment again, then they invest more money in that business. The business will then hire more people, raise the salaries of its existing employees so as not to lose them to other successful businesses, and give out bonuses again.
Once people feel that there job is secure and expect to receive raises again, then consumer confidence will go up. Then, consumer spending will naturally go up to. Until people’s companies start doing well again, consumer confidence will remain low and people will spend less.
Therefore, raising minimum wages is the last thing that we want to do right now.
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@ Fred – Good points all.
Overall, I think the Obama administration is right in its efforts to focus on job creation and stimulating the economy over the long term. I also agree that issuing stimulus or rebate checks would have done little in the medium to long term to revive economic growth. It would have been a populist, short term impact, move which I am glad the Obama administration has decided not to pursue. Tax cuts are a better solution, despite going against his campaing promises, and will also help win support from congressional Republicans to ensure the ultra-large stimulus package is passed sooner rather than later
@ Andy – It’s obvious that just handing out isn’t going to work. I agree that if new jobs can be created then that will help greatly in the long-term. Of course that assumes these are the right jobs and not just more bureaucracy. We’ll see how the plan develops!
Money Beagle says
Interesting points. I think that whatever is done should focus on the long term. The last stimulus was not popular in our house, just because I don’t think giving people a check one time is going to have a long lasting effect on the economy.
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@ Money Beagle – Agreed!
I think the first stimulus was just a tease we just paid off some debt and got gas I don’t want to pay a lot for gas these days the money just isn’t there. If it was I wouldn’t mind but it’s not.
@ weatherr – The government and congress didn’t get the fact that people would rather save that money than spend it!
There is no quick hop out of this proublem we spent years making it now it might take just as long to fix it. If Obama dose send out checks most will pay of debts so will it really help us all in the long run? No not likely but it might help us all for a few weeks!! Our Gov needs to think about what this country really needs, higher taxes not really more jobs yes there is so much that is wrong now that it will take a lot to get it fixed if the dont start now well we could be seeing some very hard times soon.
@ Ella – No, there is no quick fix. And I think we’re already seeing hard times.
The stimulus paclage is not even closely realtes to blacks in any way…. i’m a white girl, but the things I;ve heard… #1 he plans on making 5 million new jobs in the construction field…how many people u know are in consturction??? They are Mexican…. He also changed the bill to where they don’t check to see if the Mexican is legal….so you will have 20 million illegals out for those jobs plus everyone else….great stilmulkus Obama u idiot
@ Kelli – I live in NYC and there’s construction going on all the time! I see people of all races and color working in the construction field. If the stimulus creates more construction jobs then it will go a long way to keep many people in my area in work.
I feel like an idiot for all of the mispells…..I’m sure you got the point…start learning about Obama….he has not don one thing he said he would do, he’s actually lied and done the exact opposite….
Putting money into industry specific businesses instead of lowering taxes nationwide seems to be creating a lot of havoc with a lot of people, but I can definitely agree with the areas of where the money is allocated if it temporarily creates more jobs, and in the long term, it continues to stimulate the economy. (ie the investment to build more energy efficient buildings will create jobs for construction workers, and in the long run, it will save those businesses hundreds of thousands of dollars) We can only hope that all these short term plans come equipped with long term plans too. I’m really curious to see what all these changes are going to bring to the table.
@ Amber – I like to think of the long term benefits like this: A decade ago fiber optic cable was laid out all over the world to update communications. This has now led to numerous technological developments from VolP phone calls to being able to work at home to greater inter connectivity and more! If money is poured into technology now we’ll see short term job creation but it could produce exponential jobs and industries down the line.
It does not matter I am on disability and nothing in his plan is for us. We are just stuck with high medicare premiums and even though I worked for over thirty years low disability payments. I see nothing in the plan to help the poor people
I wonder if we will have a number of new stimulus payments in 2010. Mind you a number of 2009 ones are carrying over so can’t complain too much. I just hope people take advantage of all this free money on offer.
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so far the stimulus has been a big waste of taxpayer money. I supported it originally because I was afraide to look at my dwindelling portfolio. People are really hurting and Obama just keeps supporting wallstreet.