Is Obama’s Recovery Plan Working?

Is the U. S. economy on the mend? As the Obama administration marked its first 200 days in office, there have been mixed reports about the whether the patient is still in critical condition or showing signs of recovery.

Just review last week’s news. The Department of Commerce’s Bureau of Economic Analysis’ report on the gross domestic product revealed that the economy shrank 1% in the first quarter. Although most economists predicted an l.5% contraction, the figure still revealed the weakest quarter in nearly 30 years. And Deutsche Bank delivered bad news to the housing market: its analysts forecast that about half of U.S. mortgages would be “underwater” — homeowners would owe more than their property is worth — by 2011. And a number of town hall on health care reform across the nation have produced vitriolic and, in some cases, violent debate.

There was a considerable amount of good news though. The government’s Cars Allowance Rebate System– more commonly known as Cash for Clunkers trade-in program–which gives car buyers up to $4,500 for trading in older gas guzzlers for fuel-efficient vehicles, drove July auto sales for manufacturers and dealers which enjoyed their best month in two years. For example, Ford ended 19 straight months of sales declines with a 2% increase. And the U.S. unemployment rate fell in July, producing the most positive result in a year. On Friday, the Labor Department reported that nonfarm payrolls dropped by 247,000 jobs in July compared to the 443,000 positions lost in June. The unemployment rate now stands at 9.4% vs. 9.5% a month earlier — the first decline since April 2008. (The unemployment rate for African Americans fell to 14.5% from 14.7%).

The stock market rallied on the news: The Dow Jones Industrial Average jumped 113.81 points, or 1.2%, to close at 9370.07, its highest level in about 10 months. Reportedly, some 130 stocks climbed to 52-week highs.

President Barack Obama responded to recent developments by saying that “we received additional signs that the worse may be behind us…We’re losing jobs at less than half the rate we were when I took office.” In a brief statement on the economy from the Rose Garden at the White House, he cited how the Recovery Act had provided tax relief for working families and small business, expanded unemployment benefits and saved jobs while stabilizing the economy. “While we’ve rescued our economy from catastrophe,” he says. “We’ve also begun to build a new foundation for growth.”

As Obama enters his next six months of his presidency, BlackEnterprise.com asked economists, political observers, and congressional representatives whether the $787 billion Recovery Act is stimulating the economy and the president’s economic foundation is on solid ground.

Bernard Anderson, a former assistant secretary of labor during the Clinton Administration and a member of the Black Enterprise Board of Economists, maintains that the president had to take a “big bang approach” in crafting his economic agenda to contend with “a double whammy–an economy in contraction and a collapse of the financial system we hadn’t seen since World War II.”

Thomas Boston, director of research and innovation of Atlanta-based economic consulting firm EuQuant

, agrees. “The stimulus plan is having an impact on the economy although it is weaker than we hoped. Perhaps the best way to judge its effect is to recognize that we are no longer comparing current economic conditions to that of the Great Depression,” say Boston, who is also a member of the BE Board of Economists. “We will never know what would have happened in the absence of an economic stimulus.”

Republican National Committee Chairman Michael Steele refutes claims that the Recovery Act is serving as a catalyst for economic rebound. “The White House has over the last few days and weeks claimed that they saved the economy. I quite frankly don’t know what they’ve saved it from, particularly given the fact that the anxiety and concern that most Americans have as recent polls have indicated is on the rise [and] that the struggle that small businesses and employers are going through is on the rise,” he maintains. “We’re still losing jobs. We’re still seeing unemployment ratchet up around the country.”

Steele points to Wakarusa, Indiana — a town with an unemployment rate of 16.8% and the location of the town hall Obama held last week — as an example of the scores of regions where the president is making “the same old broken promises about the stimulus and job creation and the jobs saved.” He further asserts: “I still don’t know how we measure that; no one’s ever told us. What we’ve seen put on the table so far has done nothing, has done very little to create jobs.”

Obama, however, announced last week the recovery act is currently providing $2.4 billion in grants to create the new generation of electric cars and that factories are “coming back to life.” The dollars will be split among roughly 50 projects in 25 states, with the biggest allocation going to Indiana and Michigan to create jobs in such industries as the automotive

sector. In fact, the Department of Energy announced last week that General Motors, Ford, and Chrysler were awarded $241 million, $92.7 million, and $70 million, respectively, to produce electric drive batteries and components.

There continues to be much debate within the political, business and economic communities about the intent and effect of the Recovery Act. In fact, some have argued that the mammoth package was too small and that the Obama Administration should consider a second stimulus package to give the economy another jolt.  In fact, that’s the position advocated last month by Laura Tyson, an outside adviser for the Obama administration and former chair of the President’s Council of Economic Advisors under President Bill Clinton.

Anderson believes there isn’t justification for got a second stimulus package nor  not is it a viable option in the current political climate. He asserts: “First, there’s no political support. Secondly, the budget deficit would be too large, and we will not be able to afford it with health care reform and the energy and environment measures. And lastly, it is not evident that the first stimulus plan is not working.” He maintains, however, that the administration should have placed a greater emphasis on public service jobs in urban areas. “It would have had a more direct impact on job creation.”

Rep. Bobby Scott (D-Virginia), a member of the House Education and Labor Committee says that it will take time

to initiate large stimulus projects in which contracts have to go through bidding and award procedures before workers can be hired. “That process has just started and we’ll have to see what the total impact of the bill is. When Clinton was in office we tried to have a $50 billion stimulus package and that was rejected as too huge. We have $600 billion yet to be spent so that could make a huge difference.”

House Majority Whip James E. Clyburn (D-South Carolina) doesn’t believe there’s a need for more stimulus at this point. In fact, Obama signed a bill last week he was pushing to further fuel economic growth. The president approved the Treasury Department to provide $7 billion to shore up the Highway Trust Fund. The fund, which distributes $40 billion a year to states for road and bridge projects, faced a cash shortfall due to dwindling fuel tax receipts and was in jeopardy of going broke. In the fall, Clyburn will seek reauthorization of the $500 billion highway bill, which would finance state and local infrastructure repair projects over a six year period — beyond the Recovery Act’s timetable. The legislation is currently set to expire on Sept. 30. Some congressional Democrats are concerned that Obama’s massive health care reform package could derail another gargantuan spending bill.

Clyburn says much of the American public was not clear about the main objective of the stimulus program. “The whole thing was a recovery package, but a big part of it was to stabilize economic conditions which meant stop the layoffs and keep people working,” he says. “I think people were looking at us to grow the workforce. That’s another thing that we didn’t emphasize enough, and that is how bad things were and how bad they were going to get if we didn’t do anything to stop the hemorrhaging. We emphasized job creation when we should have emphasized job saving.”

— Additonal reporting By Joyce Jones