Fixing the Economy

Believe it or not, there’s one aspect of Barack Obama’s ascendance to the White House that’s rarely noted: He is one of a few Americans who entered 2009 looking forward to a bigger home and a higher-paying job.

Little more than a week before Barack Obama took office, the Labor Department reported that the unemployment rate had risen to 7.2% in December, its highest level in 16 years. And that was just the beginning. Many economists expect the jobless rate to peak at 8% or 9% in 2009. At the top of Obama’s to-do list is the unenviable task of reviving the weakest U.S. economy in decades. Along with employment, wages and income are down. Gross domestic product, imports, and exports also continue their downward spiral. Just as 2008 came to a close, manufacturing activity slid to its lowest point since 1980. At the same time, consumer confidence hit an all-time low. Furthermore, as President Obama worked with his team of advisers to develop his economic stimulus plan, he warned of the prospect of “trillion-dollar deficits for years to come.”

Obama’s plan is bold and far-reaching. It includes more than $825 billion in federal spending and tax cuts and is designed to put Americans back to work, shore up the nation’s infrastructure, locate new sources of energy, and provide economic assistance to struggling families. Democratic opponents of the plan claim it won’t create enough jobs to make a real difference. Others worry that the amount of proposed spending could devalue the struggling U.S. dollar and spark inflation.

Since our inception nearly 40 years ago, black enterprise has periodically gathered leading economists to provide an economic outlook as well as policy recommendations for the White House. The most recent confab–taking place

in the shadow of falling asset values, bank failures, and auto industry bailouts–was filled with a sense of urgency; many experts believe public sentiment will turn against Obama unless he displays a full grasp of the situation within his first six months on the job.

Few economists dispute the need for a federally induced stimulus plan. What many experts, lawmakers, and even everyday citizens disagree on is the size and scope of the plan. The same was true for the Black Enterprise Board of Economists, which includes Bernard E. Anderson of the University of Pennsylvania’s Wharton School; Thomas D. Boston of Georgia Institute of Technology; Yale University economist Gerald D. Jaynes; Howard University visiting professor of economics Jessica Gordon Nembhard; and special guest Deborah C. Wright, president and CEO of New York-based Carver Federal Savings Bank (No. 1 on the be banks list with $803 million in assets). What emerged from our gathering was a collection of policy proposals for the new president–a “New Deal” for the millennium. Their suggestions included aggressive public works programs similar to those developed by President Franklin Delano Roosevelt. Moreover, many recommended a series of tax rebates and cuts to put more dollars in Americans’ pocketbooks. Some worried that Obama’s big plan doesn’t focus enough on small things, such as the role of community banks and small businesses in helping to fire up the economy. However, the board universally agreed that the desired outcome must be job creation.

Amid the current downturn, African Americans are particularly vulnerable. Anderson notes that blacks are twice as likely to be out of work as their white counterparts. Although blacks make up 10.9% of Americans who have jobs, they comprise 19.7% of the jobless. Overall, the most significant erosion of

U.S. jobs can be found in industries such as construction, finance, insurance, and professional services–sectors that tend not to have a heavy concentration of  black workers. Even so, Anderson cautions, “when you look at how the economy is deteriorating, and the rapid rate at which it’s occurring, I interpret these numbers to mean the worst for black people is on the way.”

Obama’s stimulus plan, as it’s been outlined thus far, could fall short in getting a broad number of Americans back to work. Obama’s American Recovery and Reinvestment Plan seeks to save or create more than 3 million jobs in industries such as “environmental technology.” In addition, the program hopes to put millions back to work rebuilding and reinforcing roads, bridges, and public transit systems. That portion of the proposal was just the sort of endeavor that be’s economists fear would do little to address unemployment among African Americans since that aid would flow to industries in which blacks are underrepresented. To alleviate minority joblessness, Anderson, a former assistant secretary of labor for employment standards during the Clinton administration, proposes that Obama create public service jobs “similar to what we had in the depths of the Great Depression,” he says. “We’re talking about jobs in cities to hire people to be school aides, school crossing guards, working in recreation centers, cleaning parks and rivers, and other work like that–combined with job training.” Anderson added that a sizable portion of Obama’s spending should be channeled through state and local governments. His advice to the new president: “Listen to what big-city mayors are saying about the fiscal crisis they face.”

Jaynes challenges the Obama administration to think broadly about solving unemployment long term. He points out, for instance, that while the U.S.

has transitioned away from a manufacturing-centered economy in the last two decades, a large swath of American workers are still suited only for factory work, due to lack of training and education. Jaynes also believes Obama has a unique opportunity to help the U.S. adapt to its changing role in the global economy. Along those lines, Boston thinks Obama should boost the country’s investment in basic scientific and technology research with a more aggressive, new industrial policy.

The economic crisis gives Obama license to intervene in the marketplace more than other presidents in the recent past. What that means, in effect, is that the U.S. is morphing into a so-called mixed economy as it bails out industries and purchases equity positions in large corporations. The resulting economic system is no longer a wholly free-market capitalistic affair. “The more our economy becomes part of the rising global economy,” says Jaynes “the more necessary it will be to have government involvement in the marketplace.” That’s no easy task; Jaynes foresees an intense political power struggle over government’s new role.

No doubt 2009 will also see heated arguments over how the White House uses tax relief to boost the economy.  Our economists certainly disagreed on the issue. In his plan, Obama seeks to give back between $500 and $1,000 to individuals and families, respectively. Boston likes the proposed Obama tax cuts and rebates. What he doesn’t like are the tax breaks that reward businesses for hiring new workers.  “I see the potential for that to be abused,” says Boston. “If you’re trying to stimulate the economy, you don’t want to pay corporations to do what they were going to do anyway.” Instead, Boston says, business should be awarded tax credits for making investments in new equipment and the like.

Not everyone sees the benefit of tax rebates to families. “I would not be supportive of a tax rebate, because we know what happened before,” Wright said, alluding to Bush’s 2001 tax rebates, which are widely seen as having no real stimulative effect on the economy. “Government should actually spend money the old-fashioned way: on infrastructure, putting people to work. That gets money back to the households. If they start to restore their ability to pay their bills, credit improves, they’re feeling more comfortable, and they can spend more in the larger economy.”

Gordon Nembhard proposes that government might thaw the nation’s frozen credit situation by looking to small community banks and credit unions. Out of necessity (and common sense), those smaller lenders maintained high screening standards on borrowers and stayed away from issuing subprime and other risky loans. As a result, says Gordon Nembhard, many of them “are actually still flush with capital. They have very low delinquency rates. They do very small lending to local people that they know–small business, small activities.”

When it comes to tax give-backs, Jaynes fears they may be inadequate. “That’s the weakest part of the plan for me,” he says. “I’d rather see that money going to states and cities to create jobs. A tax cut will not be big enough for this problem. This is not an ordinary little recession where you can get away with a tax cut that throws $1,000 into households–which they might be able to go out and spend.” No surprise there. Economists are rarely of the same mind when it comes to anything. That should only reinforce the importance of the one thing all of our economists agree the economy needs: jobs.