It did not take long for the Congressional attacks on the Obama stimulus package to begin. That should have been expected from the Republicans, but the more spirited disagreement with administration plans is coming from within the president-elect’s own party.
Obama has said that time is of the essence if the economy is to be saved. And, time is exactly the tool that he will not be getting.
According to The New York Times, Obama is getting pressure from his own party "Senate Democrats complained that major components of his plan were not bold enough and urged more focus on creating jobs and rebuilding the nation’s energy infrastructure rather than cutting taxes."
The consensus among economists, with Noble Prize winner Paul Krugman out in front, is that the process of saving the economy must begin within a few weeks or the chance to arrest a sickening drop in employment will have been lost. A look at retail sales, consumer confidence, and layoffs in December would support that position. Early data on the economy for January shows that the pace at which things is getting worse is accelerating.
It is possible that members of Congress, many of whom rarely read or take the time to educate themselves on most urgent matters, have not looked back at the last two big recession. Those hit the economy in 1972 and 1981. In both cases GDP contracted for about a year and unemployment came close to touching 10%. While figures will probably show the the jobless rate was 7% at the end of 2008, the number may already be close to 8%. Looking at the number of retailers that are likely to fail in the first half of this year, the chance that Detroit may still cut tens of thousand of jobs, and the systematic pruning of costs which has begun at most big companies, there will be an avalanche of people losing work by the end of the first quarter .
There are a several economic indicators that are promoted as being the keys to looking at how the economy is doing. Only two really matter–jobs and housing prices. A citizen without a job takes money out of the system in assistance. He has no chance of being a net consumer of goods and services. He become a boat anchor. Housing was the major source of credit for more than half a decade. It is now the major cause for insolvency among the people who have little money to cover mortgages and cannot see the value of their houses ever becoming worth more than their home loans.
Some analysts are already saying that any stimulus package will come too late. Gravity has already pulled down too large a portion of the financial and credit systems. If that is true, businesses and consumers cannot be saved until deflation brings down prices so low that goods and services are nearly free. At that point, people start consuming again because almost everything as been devalued to a level where it is too good to be true.
Perhaps the best way to look at it is that, no matter who holds up a stimulus package, by the end of February time has run out.
Douglas A. McIntyre