I came across this very interesting article in the newspaper Barron’s, a “financial weekly” from the Wall Street Journal. In it was an open letter from the editors directed to president-elect Barack Obama. The article outlines 8 steps he should take to restore order in the financial markets and bolster the economy. Some of the proposals are interesting, though I certainly have varying opinions as to the effectiveness and overall consequences of a few as well.
Their first proposal calls for president-elect Obama to support another bold stimulus package, one which would cost the American government 100 billion dollars. It is certainly hard to determine whether such government spending would improve the economy. Earlier in the year, Congress supported a 168 billion dollar package, giving American “folks” checks of around $600. However, the stimulus package didn’t set off any large economic activity. But I believe if president-elect Obama were to support another stimulus package, this one would be way more beneficial to the economy. This is simply due to timing. The holiday season is already here, and a few extra hundred dollars in American family’s checking accounts would most certainly recycle directly directly back into the consumer markets, bolstering economic growth and helping large and small businesses.
The second proposal calls for Obama to support Aid for GM and Ford, calling the government to send 25 billion dollars to each corporation which would eventually pay the government a dividend. I think the consequences of these actions could be dangerous. We have already seen the government bailout major insurance corporations like AIG and financial consulting firms like Merrill Lynch. There must be other ways the government can help America’s economic backbone in the automobile industry rather than direct bailouts. Soon all large corporations would become dependent on government bailout money, granting our government unprecedented power and control over huge, public corporations. We are a nation founded upon the economic principle of free trade, private companies, and open markets with as little government interaction as possible. We do not want our government to become too large or powerful. However, I am in favor of this article’s seventh proposal, which calls for changing the fuel-efficiency rules for this nation’s automobile companies. Ford and GM should be able to import their small cars from over-seas so they can maintain the Corporate Average Fuel Economy standard, while they work on technologies for alternative fuel vehicles.
I also agree with the article’s proposals to delay tax increases and support legislation that would keep union ballot’s secret. Barack Obama promised to raise taxes on wealthy American’s throughout his campaign. However, I agree with the article in believing such an increase on the wealthy at this point in time, with the economy in its current state, would only hurt attempts to restore it. The wealthy’s money is usually expended into family businesses and public stock, helping create jobs. Yet, I don’t agree with the article when it says to increase tax on gasoline. I believe high prices of gas would only cause panic once again in the economy and would out-weigh the incentives to buy more fuel-efficient vehicles. Lastly, I agree with helping keep union’s ballots secret. Union members should not be influenced in any ways by outside forces to vote for something pertaining to their job. They should be able to vote their conscience and not be intimidated by higher authority. Such legislation would promote union membership and increase jobs in the United States.
I will end this blog with a few simple questions. What do you, the reader, think of these proposals: Will they help our economy or only send it further plunging into recession? Do you agree with my opinions? Are there any steps you think Barack Obama should take that aren’t outlined in the article? Do you think there are steps which were outlined that shouldn’t be taken?
Here is the link to the article
http://online.barrons.com/article/SB122670713307329839.html?mod=b_hpp_9_0002_b_this_weeks_magazine_home_top&page=1
3 comments:
This is a very interesting article and I like the bold action that the author demands with his opinions. I agree with the idea of another stimulus package as we get closer to the Christmas season and an extra few hundred dollars in Americans' pockets would certainly be recycled into the economy. Many Americans used the first stimulus checks to pay down debt or bolster savings accounts, as the article said, but if another fiscal stimulus was introduced in early December I could see more consumer spending considering the holdays. Secondly, I disagree with Justin to some degree concerning Ford and GM. Ford and GM are two companies that America cannot afford to fail. I believe Government bailouts of financial companies is a different situation because there are many differnet major companies and avenues in the financials sector. However, there are two (I suppose three if you include Chrysler, who should merge with somebody) auto companies in the U.S., GM and Ford. These companies have been around since the beginning of the century and were and still need to be the backbone of our economy. I just don't think the government will allow either one to callapse. Possibly, they could merge, but that is a ways out. Thirdly, I agree with holding off tax increases on the wealthy, certainly not a good idea in this economic climate for the reasons Justin cites. Finally, I agree with proposal three, homeowners need help. I am not too knowledgable on the housing crisis, but I do know the clinton administration encouraged suub-prime mortgage lending and government assistance is probably going to be necessary to ease the problem. The authors proposal seems fair, and there is no debating that the economy will be significantly better off without the record foreclosures.
Markets are cyclical, and eventually things will return to normal given time. Such a course of action may be the most difficult within the short run for the general public, but in the long run it will result in the greatest benefit for the economy. However, the election did present a mandate to Obama. He does not have the option of allowing to sit back and allow the free markets to work themselves out. He is going to have to do something. From the recent talks, it's obvious that he supports bailing out the Big 3 automakers. I think this is a disastrous idea. These automakers are in the position they are in because instead of spending money on innovation to develop relevant products, they have spent billions on lobbying to retain the status quo in terms of emission standards, and a suicidal aversion to progress. The reason they are losing so much money is because the public is not buying their product. Last quarter, Honda grew 1.1% while GM saw loses approaching 30% in terms of sales. Obviously, there are companies out there with products that are found to be worthwhile by the American public. I would feel much better about a bailout if it there were incredibly strict restrictions about where the money was going. If it is on innovation - fine. If it is to build more F150s, which Ford already has close to a 100 days supply worth, then the bailout would be disastrously ineffective.
In concluding this blog post, I believe it is important to address recent events which may have changed the opinions of the readers of this blog. This past week, the auto industry’s “big three” CEO’s (Ford, GM, and Chrysler) each boarded their individual private jets and flew down to Washington, D.C. The purpose of their trip; to ask Congress for 25 billion dollars in tax payers’ money to bail out their failing companies. The members of Congress sitting on the board as well as the national media certainly did not let these corporate executives leave with their reputations’ unscathed. I believe the events which passed have certainly reinforced my attitude towards the government bailing out these auto-industries. I agree with Corey’s comments, in that a government bailout will only be a temporary solution. It seems as though Corey and I would agree with former Massachusetts governor Mitt Romney, whom recently stated the only solution to turning around America’s automobile industry would be to completely re-structure the way they function. This, most argue, could only occur through their decline into bankruptcy. Furthermore, who knows where this 25 billion dollars will go? The government may just be buying these unethical CEO’s more jet fuel, rather than investing into America’s economy.
It’s certainly been very interesting to see the response, or lack thereof, from president-elect Barack Obama. He has remained relatively quiet on the subject, despite the general public’s feeling of a mandate to address the problem (as Corey mentioned) Is Obama having second thoughts? Certainly only time can tell.
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