Two Eras and Deals Abound

     We live in a quagmire of sorts in our present day. Economic concerns seem to be the most important issue to Americans. We discussed in class the way to spur growth and that is via infrastructure, education, government, and environment. In his speech this past week, Obama proposed a set of measures that has reflections of an earlier time in our history when the economy was in the rut. My aim here is to show the relevance of the speech to class discussion while providing a historical parallel.

     Yes, Obama has indeed proposed a set New New Deal I guess you can call it. He emphasized heavily job creation, particularly in construction. He goes as far as to suggest a construction fund that would evaluate the potential needs for construction projects on what would probably be an application process. Of course, there was the political banter abound, but he his overall picture painted a plan that is right out of FDR's desk (pun intended). He suggested what he called temporary work for those unemployed as well as an extension of benefits for them. For business, he wants faster patents, lower business international trade barriers, and more manufacturing at home. Furthermore, a $1500 tax credit awaits families.

     Then he made a reach over party lines to subject all government regulation to review to see if it helps the health, safety, and security of Americans as a litmus test. He invoked the memory of Lincoln by describing how Lincoln looked to the future amidst a Civil War by laying out plans the Trans-Continental Railroad, National Academy of Sciences, and land grant universities. But, he did again express his desire to tax high income earners. He concluded by highlighting the urgency of the situation with lines like "Pass this bill now", "Americans don't have the luxury of 14 months", or we cannot be in a "race to the bottom".

     Now that we highlighted some issues addressed in the speech, let's look at what the big picture is. In a straight forward manner, this is a piece of legislation remnant of the New Deal. The priority is creating jobs in construction, and the temporary work is a rehash of the Civilian Conservation Corps (CCC). Renovation and stabilizing social programs, such as Medicare, and not getting rid of them was part of Obama's plan. The Second New Deal included the Wagner Act which had the Social Security Act. What seems to me like the "Obama Deal" is trying to do is lift small businesses while the Roosevelt was interested in uplifting farms, the popular small business of that day.

     At the same time, this is like Friedman's idea of improving education (hiring teachers), infrastructure (transportation), government (government aid and regulation review), and finally environment (lower trade barriers, tax credits to hiring businesses). The infrastructure improvement is echoed by the Brooking's institure as follows:

          "Reflecting the fact that infrastructure produces public as well as private goods, we should create public  incentives for much larger private capital investments in public infrastructure."

            Source: Brookings Institute

     I think it's really ironic that we covered these points on the same week the President makes a speech entailing all four. Now, what's political banter remnant of a rally and reality will have to stand the test of time of course.

     Personally, I can care less for the fluff. Words that inspire and numbers to back it up is what is needed. Obama, while being heckled at times, seemed to garner support and not just politeness on the part of Congress. How long will that last? It may be gone already for all we know, and that is why actions speak louder than words. Their votes dictate their stance, special-interest based or not. Obama will need strong speeches all over the country to change the tide since Keynes "animal spirits" such as consumer confidence surely affect economic growth.

   The numbers themselves are not apparent since the bill isn't even passed. But, let's compare graphs of industrial production and unemployment from 1933 (the start of the New Deal) to the end of the Great Depression. First, the DOW Jones:

Clearly, the stock market liked Roosevelt's deal. How about the industrial output?
                          

     The production output jumped sharply in the 100 days but then faced an oscillation for awhile. It then rebounded strongly followed by a dip when FDR actually cut programs. So, his emphasis on temporary work and construction did in fact get engines moving. Predictably, GDP followed a path similar to industrial production as did employment.

     I can say that, based on these graphs, programs like these have helped the country in the past. However, the relevance of these ideas in our modern age has to be seen. I would say the bane of an economy is people working and trade occurring with easy business flow. Employing people to work on projects of national importance like transportation is a good idea since they would be just watching American Idol otherwise. Creating incentives for businesses to hire is the best way to appeal since they speak the language of money. Is it a good idea to keep these around long-term? I'll leave that to another day. For now, I will say this: the four pillars Friedman outlined are of considerable importance to growth. If we don't invest in these basic ideas while cutting spending where needed, we will be on a quagmire for years to come.