Will Obama Save Our Economy?

Posted January 27, 2009 by Bernz

The campaigns are over, the inauguration parties all cleaned up. All that’s left is the seemingly impossible task of fixing the American economy. President Obama has been left with quite the mess. The US is in the midst of what may be the deepest recession in the past hundred years. Every day, major corporations are announcing thousands upon thousands of layoffs. National retailers are closing their doors by the dozens. Homeowners are succumbing to foreclosures across the nation.

obama2In the midst of all the depressing and scary economic news, one word is being repeated again and again by the Obama administration: stimulus. According to this economic theory, if enough government grease (in the form of money) is pumped into the American economic motor, consumer confidence will be restored and people will spend freely again. When consumers are willing to spend money, jobs are created. When jobs are created, workers have more money to spend. The whole process levers the economy upwards. So the theory goes.

President Obama’s stimulus package involves many facets including lending money to major corporations on the brink of bankruptcy, creating jobs directly by fixing the crumbling infrastructure of the country, and giving money back to taxpayers to spend as they wish. This is a 180 degree turn away from the supply-side economics of the Reagan era.

The question is: will it work? Although we will not see the true answer to that question except in hindsight, history tells us that it is not likely to be an effective policy. Consumer demand for goods will only increase if people think that the recession is temporary. In other words, if there is a light at the end of the tunnel, consumers are more willing to spend money in anticipation of coming out the other side. However, if consumers are concerned that the current economic conditions will remain for the foreseeable future, they will take any extra money they get in a stimulus package and save it or apply it to their existing debt. While that is common sense and frugal behavior, it does not bode well for jump-starting the economy.

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2 Responses to “Will Obama Save Our Economy?”

  1. Jane Says:
    January 28th, 2009 at 2:49 pm

    Good point Bernz. In the fall when they kept coming up with the “rescue” plans in the fall, I wondered if they would do more harm than good. It just seems to keep growing out of control.

  2. Bernz Says:
    January 30th, 2009 at 7:12 pm

    Thanks for the comment Jane, and you’re right it looks like everyone was talking about the third quarter of this year in regards to start seeing anything positive. Today’s news on GDP did not help at all.

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