New Stimulus Package: There should be another stimulus package that focuses on relief for working families as well as aid to state and municipal governments. This "rescue plan for the middle class" should include an extension to unemployment benefits and food stamps as well as regulatory assistance to families threatened with foreclosure. A large percentage of the stimulus package should go to cash-strapped state and municipal governments to prevent curtailment of services and layoffs of public employees.
Additional Rescue Funds: Last month, Congress passed a $700 Billion bailout package to help stabilize banks burdened with "toxic" loans bad mortgage-backed securities. Since then, the Federal Reserved has announced it will lend $540 billion to money market funds to allow them to have enough cash to deal with an avalanche of redemptions. Despite an infusion of more than $1 trillion, additional funds must be pumped into financial institutions in order to meet the credit needs of individuals and small businesses.
Auto Industry Resurrection: The big three U.S. Automobile companies Chrysler, Ford, and General Motors are in dire straits because they have failed to adapt to changing economic realities; for example, they continued to produce gas-guzzling SUVs when it was obvious they should be converting their assembly lines to produce fuel-efficient vehicles such as hybrids. While there's a consensus something should be done to rescue the auto companies, there's continuing debate about whether they should be forced into bankruptcy reorganization or if some other alternative is preferable. On November 13th, The Obama transition team indicated they favor a $50 billion loan to automakers coupled with an automobile-industry "czar" to oversee the use of public funds and force the planning required for the giant companies to retool to produce fuel-efficient vehicles. Apparently, Obama believes the big three, coupled with their network of suppliers and dealers, are too big to fail and cannot be allowed to slide into bankruptcy: "The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil." Polls indicate that going into bankruptcy would seriously damage the Chrysler, Ford, and GM brand names and, therefore, their distribution networks might not recover.
Job Creation: The problem with these first three initiatives is that they are defensive measures designed to stop the bleeding: encourage banks to begin lending again and consumers to participate in the economy. Obama is said to be considering two different sorts of measures to stimulate job growth. The first are federal job programs and the second are changes in tax policy.
Because America's infrastructure is in disrepair, it is widely believed the Obama Administration will support a massive Federal public works program to upgrade America's bridges, parks, public facilities, rail lines, roads, and water systems. While pundits describe this effort as a reprise of the new deal Work Projects Administration (WPA), to have a major impact it would have to be much larger: at its height in 1938, the WPA employed 3.3 million people; in November 2008 there are more than 10 million unemployed plus another 8 million employed only part-time or "discouraged."
Another popular job-creation initiative would be a nationwide investment in energy efficiency a Federal effort to move America away from its dependence on foreign oil. This program would sponsor jobs in energy-related retrofits such as conversion of exiting cars to run on non-fossil fuels or insulation of houses and public buildings. It might also provide employment in new green-energy installations: placing solar panels on buildings or constructing wind farms.
Progressive tax policy can also spur an economic recovery. Many have suggested that President Obama immediately ask Congress to pass his middle-class tax cuts, "That would reduce taxes for 95 percent of Americans." Obama might accompany this with selected investment tax credits favoring growth industries such as green energy and thereby spur the creation of jobs.
Sacrifice: After 9/11, President Bush avoided a call for common sacrifice and instead advised Americans to go shopping. President Obama should strike a new tone, build upon his belief that "we're all in it together," and ask Americans to work together for the common good by saving more money, reducing fossil-fuel expenditures, and increasing donations to organizations that help the needy. John F Kennedy famously enjoined Americans: "ask not what your country can do for you; ask what you can do for your country." Barack Obama needs to reprise this notion and inspire Americans to work together to dig out of the worst economic conditions in modern times.
What's needed is audacity. In winning the Presidency, Barack Obama has built up political capital. Now he needs to expend it in a series of bold initiatives to solve America's financial crisis and plot a new economic course.