Obamanomics To Be Unveiled

President-elect Barack Obama is set to announce his economic team on Monday. His economic package is being prepared with the idea of having it ready to pass on Inauguration Day, January 20. It may well include a massive stimulus package in the range of $600 billion. There is no doubt Obama and his advisers feel the economy is too sick to stand further delay. He obviously intends to pursue an activist presidency.

Obama's economic brain trust will include Timothy Geithner, the 47-year-old head of the New York Federal Reserve Bank as Treasury Secretary. When word of his impending appointment was leaked Friday the market responded with a nearly 500-point gain. His reputation includes a cool demeanor and a non-ideological approach to problem-solving.

Larry Summers, 55, a former Treasury Secretary under Bill Clinton, will head the National Economic Council. Summers is brilliant but purportedly arrogant. His selection as an inside adviser to the president rather than a conduit to the press and public seems shrewd. Peter Orszag, director of the Congressional Budget Office, will supposedly be announced as Obama's Director of the Office of Management and Budget. He enjoys the confidence of both parties on Capitol Hill for his non-spin fiscal reporting.

To round out the top-level announcements we will likely also see New Mexico Governor Bill Richardson as Secretary of Commerce. He served as Secretary of Energy and Ambassador to the UN in the Clinton days, and his diplomatic credentials ought to come in handy in his new job for negotiating trade pacts. Hillary Clinton's position at State has also been widely reported.

The recession is worsening now primarily because of consumer retrenchment. Consumer spending accounts for some 70% of economic activity, and it has contracted as unemployment has risen, credit has tightened and home values have plummeted. The next contributor to economic activity, investment, is also down. Few businesses are interested in expanding in such a bad economy, even if they are flush or have access to credit. That leaves one entity with the pull to provide demand on a large scale, and that is the federal government.

In true Keynesian fashion, this is what the Obama Administration plans to do. Like Franklin Roosevelt's New Deal, Obama will ask Congress to initiate a massive public works program, an investment in jobs and national infrastructure to jolt the economy into action and get confidence and demand moving again. He will also reportedly go ahead with his middle class tax cut proposals. To engender some support across the aisle among Republicans, aides such as David Axelrod have let word out that Obama may not push for the reinstitution of the pre-Bush tax rates for the wealthy as Obama advocated during the campaign. Instead these could be allowed to lapse on schedule at the end of 2010.

These moves will unquestionably worsen the deficit, but the avoidance of a deflationary spiral (read Depression) constitutes the urgent matter at hand. Unfortunately, budget reduction will have to wait. In the meantime, while the Bush Administration seems to be asleep at the wheel now other than hurriedly rewriting environmental regulations to permit more poison in the air and water, the Obama team is, as expected, taking bold steps to prepare to hit the ground running and begin addressing the nation's problems from Day One-and even before.