Will the stimulus package work?

In the midst of the evolving crisis everybody is asking the same question, will the Obama economic program for recovery work?

The answers one hears from “experts” these days tend to be coated with a healthy layer of partisan biases adding fog to an already complex issue. Is this a “socialist” program? Can we recover by building bridges?

What makes this crisis so complex to address is the fact that the disastrous shape of the financial markets, resulting from very lax regulation, affected the real economy as credit began to dry affecting both consumption and investment.

Unemployment increases as the demand for good and services fall and it worsens as the demand for new equipment to produce those goods and services falls as well. Fear begets fear.

The stimulus package proposes some steps to put cash in people’s hands quickly, such as a tax cut of $1000 per family, not much but surely to multiply fast as it becomes immediate consumption.

The modernization of millions of houses and thousands of public buildings, to make them more energy efficient, will create many jobs in a sector that needs to hire many people that will turn around and spend most of their money back into their local economies right away, promoting more jobs, while their work help the country to save energy and pollute less.

The same effects will come from jobs generated out of the construction efforts in the modernization of the infrastructure in the education sector, the area of broadband expansion and the retrofitting and maintenance of our roads and bridges.

However, as the real economy becomes more dynamic the fearful credit markets hold the economic expansion down.

It is not enough to put cash in the workers’ hands, a modern economy needs to have a functioning credit sector that allows its work force to buy cars, refrigerators and houses so that consumers can access the goods and producers have an incentive to hire more workers who will, in turn, buy the goods they all make.

That is why the debate around the stimulus package is beginning to center around the question of whether the government should take control of the banks in order to start lending more money to consumers and producers since banks are not lending enough to buttress the recovery effort.

It is not enough for the government to become the employer of last resort. The stimulus package is a good idea full of good intentions and with an eye into the future. But if the banking sector does not change its behavior quickly, not likely to happen soon, the government will have to intervene and become, at least for a while, a lender of last resort while implementing a stronger regulatory environment.

Instead of lending the money to bankers, lend money to consumers and producers, not speculators. At least let’s do it until we recover. This eliminates the risk of money fleeing to countries with laxer regulation and supports the recovery stimulus program at home. Only then will the stimulus program have a chance to work within a reasonable amount of time while hoping for no new storms.

--Luis Brunstein