Don’t call it a stimulus

The more I read about Obama’s $819 billion stimulus plan, the less I’m inclined to call it a stimulus plan. And that’s ok.

Call it the Long-Term Investment Plan of 2009. Or call it the State Safety Net. Better yet, how about the We’re Democrats, We’re In Control Plan.

But it’s not the short-term jolt that many lawmakers and economists are asking for. If that’s what Obama wanted, he would’ve taken the Bush approach by sending more affluent households a check (although a good portion of the Obama plan comes in the form of tax cuts for lower-income families).

Nevertheless, I’m a big supporter of the long-term uses of the money, especially on education, technology and energy. Let’s face it, our current economic situation represents a painful spring cleaning. And if we invest our money wisely in programs that provide a long-term competitive edge, we could emerge from the ruins as a more productive nation built on a foundation of ingenuity and innovation. That comes from investing in our skills and smarts.

I'm still processing all these moving parts. If you're also processing, check out some of these great resources:

American Recovery and Reinvestment Act of 2009
If you're planning on locking yourself into seclusion for a few days, you can read the plan in its 647-page entirety.

NY Times economic stimulus guide
For the rest of the working world looking for a less wordy breakdown, this guide provides a great explanation set against context and history. Highly recommend.

Pelosi's breakdown of the plan's main points
You can even watch her flaunt the Democratic party's majority rule. Beware, Madam Speaker. Tom Delay's hubris still haunts the halls of Congress.

Obama's benchmarks for success
Keep the administration accountable with this cheat sheet.

A fair and balanced proposal from an ex-Bushie
Lawrence Lindsay provides a rebuttal in the form of a greater payroll tax cut. Subscription required.

A stimulating look at past recessions

The New York Times Web site posted an informative series of audio narratives from three economists about how U.S. presidents have used Keynesian ideals in their stimulus plans (although some won’t admit it). The discussions show an interesting dynamic. Presidents want to make their mark on the economy by pumping money into the system or cutting taxes, but oftentimes it’s the Federal Reserve’s actions that make a bigger impact.

This is a good history of the relationship between monetary policy (via the Federal Reserve) and fiscal policy (via the government) in solving U.S. economic problems. Check it out.

Stimulus and swine

As I’m following the debate around Obama’s economic stimulus package, the aphorism “one man’s terrorist is another man’s freedom fighter” keeps ringing in my head. In this case, is one man’s stimulus package is another man’s pork?

The front page of this morning’s Chronicle raises this question. Check out the handy chart at the bottom of the article that shows where the $825 billion in taxpayer money will go.

Much of the money could yield longer-term returns through greater energy efficiency and more better computer systems. But $200 million in renovations for the National Mall, $44 million for repairs at the Agriculture Department, and $426 million to construct facilities at the Centers for Disease Control and Prevention seem weird, and only beneficial to D.C. construction companies.

At first blush, I am echoing Republican concerns that most of this money will do little to stimulate the economy. Obama’s throwing money at federal agencies that starved during the Bush administration. He also runs the risk of picking industry favorites, such as construction and health care, rather than providing relief to middle class Americans. But I’m not convinced that the Republican approach of giving a few hundred bucks in tax cuts for Americans to spend on useless stuff will help us invest for a better future.

I want to see an America that can apply its innovative spirit to fix the inefficiencies of our nation’s critical systems such as energy, food, health care, and transportation. And as a product of Silicon Valley, I’m idealistic that technology can play a big role in building a society that runs on more brains and less fuel than other countries. In order to make this work, government and the private sector must collaborate. Progress cannot be a solo venture.

What’s up with TED?

Since the credit market hit the fan in September I’ve become an armchair economist. That’s because following our economy is more exciting than following sports. It’s unpredictable, erratic, and paralyzing even to the most brilliant policy minds in our nation.

Along the way, I’ve learned about a bunch of data points and indices, but one that’s a favorite of mine is called the TED spread. It’s not a household name, but it’s nonetheless a window into the soul of capitalism. The TED spread measures the difference between the three-month London Interbank Offered Rate (LIBOR) and the return on interest rates from the three-month U.S. Treasury bill. During normal times, the TED spread is less than 1, meaning banks are lending to each other at a similar rate to what the government pays out on interest. But these aren’t normal times.

In September when Lehman Bros. collapsed and AIG’s near-failure required government intervention, the TED spread went haywire. It shot up to 4. The chain reaction was quick. Banks didn’t know who to trust, so they stopped lending to each other. Capital stopped flowing, which meant the pool of money available to businesses dried up. Without capital, businesses had to make tough decisions by trimming jobs, paring away unprofitable initiatives or just closing shop.

Here’s the good news. The TED spread is back at the pre-Lehman levels of around 1. While it doesn’t mean we’re out of the woods, it does show things are moving again, albeit slowly. So keep your eye on TED. Where it goes, tangible action is sure to follow.

Three things I learned in econ class

"Many people say this is the end of capitalism as we know it."

This comment came from a woman siting in my economics class sitting three rows in front of me. This economy has created a Chicken Little in all of us (myself included). The end is near! Dooms for all of us! The worst economy since the Great Depression (I use that one a lot)!

I'm taking this class because I want to separate facts from fear. This class at Stanford Continuing Studies (only $285!) has been great. Some facts from my soft-spoken professor Jim Howell:

1. The rise and fall of the economic system always corrects towards an equilibrium of 2-4% growth. In other words, what goes down must come up.

2. The average time span for an economic recession has narrowed in recent decades, while periods of economic expansion have increased. According to the National Bureau of Economic Research, there hasn't been a recession lasting more than 16 months since the early 1980s. The most recent recession in 2001 lasted only 8 months, followed by 73 months of expansion (fueled by the easy credit that got us into this mess). On average, recessions between 1945 and 2001 have lasted 10 months, and expansions spanned 57 months.

3. The stock market is not a leading or lagging indicator of the economy. It's more of an emotional reaction to what's perceived to be true.

Maybe this recession, which started in December 2007, will buck the trend and put us in a deep freeze for more months than the historical average. But let's remember that everything that goes down in the economy always finds a way back up.

Here's the question: what are the variables that will fuel our recovery?

Battle Mode

I’m not an economist. I don’t play one on TV. I’m just a guy who’s been on the wrong side of two layoffs in a year.

Luckily I’m also a media junkie and an addict of This American Life, whose outstanding reports about the housing collapse and the credit meltdown jolted enough fear into my system that I adopted an aggressive savings plan. I remember vividly driving down 101 one Saturday afternoon listening to TAL and learning about the implications of the commercial paper market stalling. That’s when I realized my company wasn’t immune and would need to make some tough decisions. Such a beautiful day, such sobering reality.

I went into Battle Mode. I cut my spending by 25% and allocated that amount directly into savings. I reawakened my weekly budget spreadsheet and started to report every expense. I reinstated my left pocket, right pocket system (more on that some other day). I began considering options for my condo. I’m one of the fortunate ones because I reacted soon enough to build decent safety net. Some of my other colleagues were not so lucky—they had families to feed, mortgages to bear, debt to pay off.

I’m blogging about the economy because there are rays of sunlight that can break through these cloudy days. The worst thing for us to do now is to give in to the perception that we’re screwed. We’re not.

Six heads talk about Obama's stimulus plan

Some more specifics about Obama’s pending cash avalanche—also known as the American Recovery and Reinvestment Plan— through the voice of his policy team. Yesterday the administration released a video of Christina Romer, who spent 9 rambling minutes explaining how they’ll create up to 4 million new jobs through this plan. Today’s video is different. I have a better idea what his team is trying to do. I see their faces (cool… lots of minorities!). Their talking points are more focused, but some of the ideas are still vague.



Here’s a breakdown:

0:00
Mona Sutphen, Incoming White House Deputy Chief of Staff
Main point: The plan will create millions of jobs and at the same time place a down payment on our economic future.
Notes: Similar sympathetic vocal tone as a Save the Children commercial

1:00
Carol Browner, Assistant to President-Elect for Energy and Climate Change
Main points: Train workers for green jobs in wind farms and solar. Create a green economy by making fed buildings and lower-income homes more weather-efficient.
Notes: They have a point. I spent $3 to weather strip my front door and it made a difference. But how does a lower fed energy bill help the economy?

1:51
Madhuri Kommareddi, Economic Policy Team
Main points: Filling potholes creates jobs, Bush administration didn’t do jack, build more labs, expand broadband footprint.
Notes: I should’ve taken shop in high school. Who needs calculus in times like this!

3:01
Tom Daschle, Secretary-Designate Health & Human Services
Main points: Help states who are trying to provide Medicaid and childrens’ insurance assistance. Modernize healthcare IT systems as a preventative measure.
Notes: I smell a bidding war between IBM, HP and Oracle. Love the glasses, Tom.

3:46
Melody Barnes, Director-Designate, Domestic Policy Council
Main points: Fed will help schools facing budget issues. Superintendents don’t have to lay off teachers, they can keep their programs and maintain their reforms.
Notes: Do these policies give under-performing teachers a lifeline too?

4:55
Lawrence Summers, Incoming Director, National Economic Council
Main points: War on wasteful spending. Greater accountability of government through a Web site that monitors investment projects and a new board of officials.
Notes: Check out Summers’s remarks on monitoring the bailout plan from last fall.

5:37
Mona (encore)
Main points: One thousand dollar tax cut!
Notes: I know, I’ll invest it. No, I’ll put it in my savings and earn 0% interest. I know—I’ll pay of a percentage of my mortgage with it.