The emerging economic policy

From the ashes of the still-burning financial sector and slowly and tentatively walking across the fields of the newly ranks of the unemployed in the United States President Elect Barack Obama and a team of experienced members of the national economic establishment held a first meeting to profile a first approximation to a set of potential solutions.

Most notably is the mix of academics and practitioners, however, besides the former Secretary of Labor under Bill Clinton, Robert Reich, most of names are not associated to the progressive ideas exalted by Mr. Obama during his “change” campaign.

There are other people in this country, center-progressives like Joseph Stiglitz and Paul Krugman, who should have been consulted on account of their vast knowledge and understanding of global crisis. While this may be a sign of things to come, at this point is too early to produce a fair judgment.

From the initial meeting with this group of people Mr. Obama announced that the first order of businesses would be to quickly implement an economic stimulus package and during his speech he tangentially suggested that some of the bailout money could be diverted for this purpose.

Additionally he suggested that his administration will tray to revert a tax reduction on the upper classes passed during the current administration and lasting until 2010. Ideally Mr. Obama would like to revert the law in 2009, thus gaining a year of additional tax revenues to be used towards the stimulus package.

Are these good ideas?

The short answer is, yes.

Under the current circumstances it has become clear that increasing the amount of available money in the economy, lowering interest rates, and otherwise making it easy for banks to obtain fresh funds has not promoted economic activity, as verified by the recent increased in unemployment and fall in output. Hence, monetary policy is trapped in a pool of cash.

An stimulus package, allegedly, would not only restore employment, as hinted by Mr. Obama, via the public sector but would, fundamentally, put money in the hands of workers who will spend it right away in food, shelter, clothing, education and all the necessities. Every dollar that goes to the hands of the working class will have the largest multiplier effect on the economy.

During a crisis this is the most adequate and progressive solution. In that sense, it agrees with both, Krugman and Stiglitz’s views and most likely with many Keynesian and Post Keynesian economists dispersed across the academic firmament. And that reveals that perhaps, Mr. Obama is beginning to walk the walk above and beyond the views held by anyone in the traditional establishment.

— Luis Brunstein