Like JFK’s visionary economic initiatives under pretty similar circumstances about a half century ago, I think President Obama’s very recent bold, visionary economic initiatives will turn this long-lasting US jobless, tepid recovery into a long-lasting, robust private sector job-creating economic recovery.
The three main items he is now proposing is just the right mixture of near term, medium term and long term economic initiatives:
…..100% Tax Writeoff of Plant and Equipment Investments….near term economic jolt
…..Research Tax Credit Made Permanent…..near term, medium term, and long term innovation and certainty
…..Transportation Infrastructure Investments…..near term, medium term, and long term foundation to facilitate business growth
I think this three-pronged economic stimulus will immediately and substantially enhance the status of the US as a Worldwide Economic Powerhouse. It builds up the necessary infrastructure and provides high powered tax incentives to markedly elevate primarily two critical US industries…..Technology and Manufacturing. It will put these two US industries, as well as many other US industries, in much better positions to effectively compete in the world economy.
And this economic initiative here is fully paid for by wisely closing a small portion of the many Big Corp tax loopholes, that have served as an unfortunate drag on the US economy.
Without this bold economic initiative, I think that real US GDP growth would be in the 0% to 1% range for the 4Q 2010 and also for all of 2011. Assuming the 100% writeoff of plant and equipment is effective starting today, Sept 8, 2010, through the end of 2011, I think that real US GDP growth will be bumped up to average in the 4% to 6% range for the next five quarters (i.e. 4Q 2010 and all of 2011), and to average in the 2.5% to 4.5% range for many years thereafter. And the single most important driver of US deficit reduction is robust, long-lasting real GDP growth.
It will take a bit longer on the job front. Given the just horrible financial aftershocks to the US structural economy resulting from the 2000s Lost Decade, without this bold economic initiative, I don’t think you’ll see US unemployment below 9% or see the total US unemployment and underemployment rate below 15% through the end of President Obama’s second term.
With this bold economic initiative, and assuming it also includes both new plant facility investments and existing plant facility remodeling costs, as well as also including some wise measures to better insure that the 100% plant and equipment writeoffs by businesses also directly result in full-time payroll count increases and subsequent employee retention by these same businesses, I see a substantial increase in private sector jobs right away, which will continue at a very robust level for the next five quarters, and then continue at a less robust, but still very nice level of increase, for many years thereafter.
However, with so many people presently underemployed or out of the labor force completely, even with this economic initiative, I don’t see the unemployment rate going down right away. But keep your eye out starting in say March 2011….you should see the unemployment and underemployment rates start dropping significantly by then and continue to decline for many years thereafter.
I think you’ll see this economic initiative quickly pass the US Congress. Businesses should love this three-pronged economic initiative. They will put a lot of pressure on the Republicans in the US Congress to quickly pass this measure. Corporations haven’t been able to record the increased earnings from the R&D tax credit in the first half of 2010. They would really like to get the reported GAAP earnings increase from this but it has to pass first. In addition, businesses of all sizes would love to get the income tax benefit of the 100% plant and equipment writeoff before this year end in order to shelter some of their current year profits.
The only thing that will stop this freight train from passing are the Republicans in the US Senate, bent on having the President fail, even if US citizens suffer severely in the process.
Since this economic initiative is so critically important to the country, I wish there could be some way for temporary changes to be made to the Senate Finance Committee process to make it much more effective. First, I would consider killing the Senate Finance Committee Chairmanship by seniority process. Instead, I would like to see the very brightest and most effective Senate Finance Committee members on both side of the aisle take over temporary chairmanships…in my opinion, from very close observation, either Idaho’s Crapo or Maine’s Snowe on the Republican side, and either Washington’s Cantwell or Oregon’s Wyden on the Democratic side. And then I would consider temporarily adding to the Senate Finance Committee a couple of the very brightest US Senators, who in my opinion are Indiana’s Lugar on the Republican side and Wisconsin’s Feingold on the Democratic side. These two former Rhodes Scholars both have incredibly brilliant minds and could really help get this critical economic initiative done well and in quick order. And then I’d consider adding a couple of US Senators temporarily to the Senate Finance Committee who are flat out fiscal experts, like Indiana’s Bayh.
On another point, I think one of the most important aspects of this three-pronged economic initiative is the establishment of a federal government infrastructure bank, which will facilitate both the quality of selection, and the speed of the start and completion of, infrastructure projects. And frankly, I think this federal government infrastructure bank could eventually also be wisely used to facilitate the reduction of the massive number and amounts of underwater homeowner mortgages that are out there. Further, to think outside the box, I’d even consider having this federal government infrastructure bank make some prudent direct loans to small and medium-sized businesses that were unsuccessful in getting their plant and equipment investments, spurred by this economic initiative, financed by private sector financial institutions.
The whole country should be proud of what the Obama economic team has designed here. It’s a winner and by far the best economic initiative that has been designed by the US government in the past decade. And the bang for the buck is great because it is so very well targeted at the critical economic issues.
