American Recovery and Reinvestment Plan

ARARP is the President-elect’s bailout plan, hopefully not Trouble Assets Relief Program (TARP), Part 2. He’s already making the rounds of Congress, pushing for a speedy passage once the new administration and Congress take office in a couple of weeks. On January 5^th, just before some key meetings on Capitol Hill, Mr. Obama noted: "The economy is very sick…The situation is getting worse. ... We have to act and act now to break the momentum of this recession." His goal is to get the legislation before Congress within two weeks of his inauguration.

Republicans are asking for a slower process with more scrutiny. It’s only the beginning of this new focus, the exact price-tag isn’t set yet (it could top $775 billion or more over two years), but it does seem to target the creation and/or retention of 3 million jobs and immediate aid to stem the foreclosures that are pushing home values further south.

Battle lines are being drawn as some Congressmen and women are looking for “a deal” – exchanging votes for local earmarks – while others (including the so-called Blue Dog Democrats) want to see some longer-term limitations on programs that could create what they believe will become an impossible call on future budgets that will be struggling to repay debt. Federal procurement practices, particularly for the military, face harsh review, and even Social Security and Medicare benefits may see benefits curtailed down the line.

A master of modern media, Obama’s latest entry in the YouTube arena (his version of FDR’s fireside chat) notes that: “For too many families, this new year brings new unease and uncertainty as bills pile up, debts continue to mount and parents worry that their children won't have the same opportunities they had… However we got here, the problems we face today are not Democratic problems or Republican problems… The dreams of putting a child through college, or staying in your home, or retiring with dignity and security know no boundaries of party or ideology. ... I am optimistic that if we come together to seek solutions that advance not the interests of any party, or the agenda of any one group, but the aspirations of all Americans, then we will meet the challenges.”

While the entire program is not yet fully defined, a few details suggest that the stimulus package will contain far more than the infrastructure, technology research and educational assistance that has been at the forefront of most discussions. According to a January 3 report by the Associated Press: “Congressional aides briefed on the measure say it's likely to blend tax cuts …for middle-class individuals and couples with between $140-$200 billion to help revenue-starved states with their Medicaid programs and other operating costs.” Since 36 states face budget deficits – with California easily leading the way – and 29 state unemployment insurance systems either fully tapped or about to fail, this has to come as good news to that sector, which ultimately benefits local taxpayers as well, although much of this aid to states may take the form of loans that will need to be repaid.

The January 5^th New York Times noted that 40% of the stimulus package would be implemented through the above noted tax cuts as well as job-creation tax incentives; the legislation addresses Obama’s “centerpiece campaign promise to provide credits up to $500 for most workers, costing roughly $150 billion. The package will also include more than $100 billion in tax incentives for businesses to create jobs and invest in equipment or factories.” About half of those business tax incentives would come in the form of a one year tax credit for companies that add new jobs. Extending and subsidizing medical benefits for those recently laid off is also on the table.

While the risks of inflation down the road mount with every deficit dollar incurred, most experts agree that the danger is not in providing too much in the stimulus package; it is in providing too little. But we are also admonished by the Federal Reserve’s and Treasury’s candid admission that they have been unable to track clearly the benefits of the $700 billion TARP program, and we know that there is still about $1 trillion sitting in banks and other financial institutions that are afraid to let go and lend. ARARP has to be tracked and measured this time. Programs require accountability.

While waiting too long has equally dire consequences – the economy could drop to a new low and we could mimic the decade-long Japanese recession in the 1990s where the government failed to act sufficiently – we are running out of error room. The President-elect addressed timing as well: "Economists from across the political spectrum agree that if we don't act swiftly and boldly, we could see a much deeper economic downturn that could lead to double-digit unemployment and the American dream slipping further and further out of reach." Global political issues only make the solution more difficult, but we must endure.

If we can hit and hold “bottom” by mid-year, then all of this effort will have been worth it. If we do not, the road back will be longer and much more painful than we have seen so far. I don’t envy the President-elect, but at least he deserves the some support from Americans on both side of the aisle as he tries to fix the biggest economic mess this nation has seen since the Great Depression.

I’m Peter Dekom, and I approve this message.