At present, I see very little in the way of Keynesian pyramid building. Nor do I see an attempt to grab the revolutionary moment by the horns and push the U.S. in a new direction. Thus, thankfully, No New Deal. There is plenty of uncertainty in the economy but it’s not regime uncertainty.
Hopefully we’ll have time to read the Obama speech later today [transcript]. Meanwhile, I am encouraged by this analysis from GMU economist Alex Tabarrok. It is early days, and we still have only rhetoric to go on — still, as Alex said in the comments “Do note that I am evaluating Obama relative to what we can expect given the situation and our current politics and also relative to say the New Deal.”
Given the makeup of the House and Senate, America is at real risk of a repeat of disastrous New Deal policies. Fortunately, most of the Obama economic advisors are more centrist and sensible than Congress, so there is hope. Excerpts from Alex’ post:
…He emphasized that jobs would be created in the private sector and saved in the public sector. Nicely put.
His goal is “not to create a slew of new government programs, but a foundation for long-term economic growth.” Very good.
In terms of long-term investment, I was pleased to see him mention the smart grid in particular, an idea I pushed as recently as today.
Overall, my view is that the Obama fiscal stimulus plan is evolving in a sensible direction. As promised, he is a pragmatist who is listening to a wide variety of well-qualified, centrist economists.
A substantial fraction of the fiscal stimulus is tax cuts, a substantial fraction is preventing state and local funding from plummeting, a modest but reasonable fraction is on maintenance and improvements of old infrastructure (projects that are mostly already on the books), and a modest (but increasing over time) fraction is on longer term projects which are likely to pay off in future returns.
UPDATE: I’ve read the transcript and I’m not nearly as sanguine as Alex. Obama said ” It is not just another public works program. ” It sure looks like one to me — one where lobbyists and politicians “pick winners” which is certain to mean “spend your money where it will get me elected”.
I don’t see any of the smart policies that will get results. Nothing to stimulate business investment or raise productivity. Nothing to improve predictability needed to unfreeze investment decisions. In fact, nothing that gives any hint that Obama understands that it is the private sector that creates jobs and wealth. Did I just miss the good bit?
For more, see Stanford’s John Taylor (yes, the Taylor of the Taylor Rule) here, here and here. Another angle from Harvard economist Ed Glaeser.
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