Going off Obama


I'm going off Obama and he isn't even in the White House yet. In response to the news that America lost half a million jobs in November, he's announced a massive spending programme of new roads, bridges, schools, internet cables, and much else. It's estimated at $700 billion, but it might even top a trillion, say some.

There are two problems with this. Firstly, where is all that dough going to come from? Well, it's going to come mostly from borrowing. With US interest rates at 1%, borrowing is cheap, for the government as for everyone else. But then it was cheap credit and too much borrowing that got us into this hole in the first place. Whatever the problem - the 1987 crash, the dotcom crash, 9/11 and now the 2008 meltdown - the federal government has thrown money and cheap credit at it. Yes, it prevented downturns in every case: but we all got hooked on the stuff. Just like a drug addict, it has taken larger and larger doses to keep the high going. We've been so high for so long that the inevitable comedown is now that much longer and more painful.

So what are we going to do? Inject ourselves with more of the same drug, and hope it will get us through the pain. Well it might, but only at the cost of more pain later on.

My second objection is that building programmes like this too often reinforce the economic ups and downs, rather than smoothing them. You can't just build roads, bridges and schools overnight. You need to work out the need for them, design them, specify them, get planning consents for them, tender them out, review possible contractors, hire in staff, fund them, build them. So it can be two years or more before any real cash starts to get paid out to all those currently-unemployed construction workers. By that time, the economy might have started to get going - so you're not spending in a depression a la Keynes, you're spending in an upswing and simply taking resources from that recovery.

Now that the financial sector is stabilized - well, a bit more stable - it's not a matter of having to intervene hard and big just to make sure confidence doesn't go through the floor and add to the crisis. It's a matter, sadly, of going through the hangover and getting on our feet again. But yet another dose of the money drug isn't going to help us kick the habit.