Obama's Medicine for The Economy (Dean Baker)

[depakid]

With US unemployment soaring, spending on infrastructure and other projects is just what the doctor ordered

Barack Obama wants to spend several hundred billion dollars in each of the next two years building infrastructure, retrofitting public and private buildings to increase energy efficiency and aiding state and local governments in dealing with budget shortfalls. He thinks that this spending will boost the economy and reverse its steep decline. Obama is exactly on the mark with his plan.

The job numbers released last week removed any possible doubt that the economy is facing an extremely sharp recession. The US labour department reported that the economy lost 533,000 jobs in November. Upward revisions for the prior two months raised reported job loss over the last three-months to 1,256,000 jobs, the second highest in the post-war period.

Even this figure likely understates the extent of job loss, since the labour department imputes jobs for new firms into its data. Its formula for this imputation actually shows new firms generating more jobs in September to November of 2008 than in the same three months of last year. This imputation will be corrected next fall, and the adjustment could easily raise the pace of job loss by more than 50,000 a month.

The November data was striking because the job loss was so widespread across sectors. Construction and manufacturing continued to be hardest hit, but retail, finance and transportation also had large job losses. The only sector that continues to create jobs at a healthy pace is healthcare.

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Fortunately, effective stimulus is item number one on Obama's agenda. His proposal would spend several hundred billion dollars on ready-to-go infrastructure projects such road and bridge maintenance and school repair. He would also devote funds to extending broadband reach and paying for energy-conserving retrofits of public and private buildings. The latter plan involves a huge expansion of already existing programmes.

These proposals will quickly get people back to work and inject more money into the economy. They will also provide lasting benefits in the form of better transportation, safer schools and reduced energy use.

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It appears as though Obama will try to get a healthcare reform bill through Congress in the first year of his presidency. While a healthcare package will almost certainly save money over the long run by wringing waste out of the system, it will cost money in its first years as coverage is extended to cover the uninsured and new systems of payments and cost control are established. Given the economy's current weakness, these upfront expenses can be another source of stimulus to the economy.

More: http://www.commondreams.org/view/2008/12/10-6