The View From Here . . .

By Bob Morgan, Jr.

The first major challenge confronting the incoming administration of Barack Obama is crafting a stimulus package that is targeted to the economic problems at hand, rather than a general grab bag. This will certainly be a daunting task.

No one doubts that the economy is in significant trouble. According to the Bureau of Labor Statistics, there are 2.2 million people who have been unemployed for at least six months, with additional workers who have given up their job search. Unemployment was at 6.7 percent in December, and very likely to head considerably higher. Meanwhile, the financial sector is weak, the domestic automobile industry near collapse, housing prices in decline and many state and local governments in distress.

One temptation to be avoided is simply to throw money at financial problems. Both the Bush Administration and the Democratic Congress were guilty of this in 2008 when they agreed to a "stimulus" package that amounted to a tax refund check for taxpayers and simply a transfer payment to non-taxpayers. The stimulus had very little noticeable effect on the economy.

We are now beginning to see the outline of the Obama plan. According to The New York Times , the proposals by Mr. Obama and his Congressional allies would cost $675 to $775 billion over two years with additional proposals possibly increasing the total to $850 billion. The proposal would include tax cuts for workers and businesses, expansion of health and unemployment benefits, spending on infrastructure energy and jobs and additional expenditures for education.

The effect of the plan on the federal deficit is enormous. A column by economist Robert Samuelson quotes an estimate by budget expert Stanley Collender that the 2009 deficit, taking into account the stimulus and other likely increases in federal spending, could exceed $1.3 trillion, about 9% of gross domestic product. The piece points out that in dollars that would triple the 2008 deficit of $455 billion and, as a share of GDP, it would dwarf Ronald Reagan's post-World War II record of 6% in 1983. Of course, large deficits can create inflationary pressures, damage the currency and are unfair to succeeding generations.

Even in outline form, and beyond the deficit issues, Obama proposals raise other significant issues. Mr. Obama spoke on Saturday of creating 3 million new jobs, "more than 80 percent in the private sector." Is he seriously proposing up to 600,000 new government workers? The administration's proposals also seem to make a number of major policy changes that have substantive long term effect.

For example, the Times reports that the stimulus proposal would permit employees who lose jobs and did not have health insurance to be eligible, for the first time, for Medicare coverage. Also, the education part of the package, in addition to funding construction and renovation of schools, includes money for teacher training, expansion of early childhood education and college tuition aid. Whatever the merits of these proposals, they are not specifically related to restarting the economy in the relatively short term and should be separately considered and debated.

Virtually everyone agrees that the government needs to step in to help restart the struggling economy. Some tax relief, especially relief aimed at creating jobs, makes good sense and so does extension of employment benefits to spread the safety net. Also, infrastructure projects with short lead times should be in the mix. What we do not need, however, are budget busting proposals like the 2008 stimulus or hastily considered social welfare programs that will have effects long after the current recession is in the rear view mirror.