The Obama National Makeover

Here is the latest weekly address by President-elect Barack Obama.

One big question that remains unanswered is how the new administration will pay for this national makeover.

With the current Congress and Administration handing out millions if not trillions of taxpayer money, where will all this new money come from?


  1. Debt – which is what any sensible government does during a time of economic recession/depression.

  2. I am afraid we are beyond DEBT. Eventually we will ALL be taxed the old-fashioned way, a la Robert Mugabe… just print, print, print. I haven’t kept up with the latest Mugabe created inflation, 2000%? In the meantime, Obama will ‘save’ our 401k’s by taking them into the government for protection. There WILL be taxes imposed in the usual sneaky ways, like expanding the amount before SS ends for you in a year AND capping income you can enjoy before you are eligible for any of the increased monies (SS)you paid. Naturally YOU won’t be worried about those kinds of problems as you expect you will never be earning money in that category. NO? My Dad worked for years at a hardware store during the depression for $15 a week. I’ll bet he never thought that $15 would be considered a reasonable HOURLY wage. Inflation has already taxed the bejeeesus out of our economy. How many years will it be until you are all in that elevated category? I am afraid it will be a relatively short time, a matter of years, not decades.

  3. BTW, In case you believe we have not had the kind of inflation I am talking about, does anyone remember when it only took ONE employed member of the family to sustain a family of five or six or more? Get ready to send the kids to work.

  4. Iris – the problem you cite is real, but the problem has been that while productivity of the average worker has gone up wages have not kept even remotely in pace. There has been an incredible distribution of wealth upwards in the past 40 years.

    What smart governments do is go into deficit spending when in the throes of a downturn and target infrastructure and other types of spending. This spending is necessary to reduce unemployment and shorten the period of the downturn and this will pay off with higher revenue in the future. When in more positive economic times the government should then seek to pay down the debt. This is what works.

  5. Iris Lynch says

    Todd, With the exception that it has NOT worked. Roosevelt started out in 1933 with an 25% unemployment rate and by the time some years had gone by, he managed with all that Obama is going to copy, to raise the unemployment even further.

  6. Iris,
    Actually No. The problem with Roosevelt is that he listened to people who said that he needed to prioritize keeping the budget balanced. Only in 1938 when he abandoned this and started increasing deficit spending did things start to turn around. Keynes was right and had he been listened to in 1934 the depression would have been much shorter.

  7. Iris Lynch says

    I do not agree with your version of history. We shall see how it works this time.

  8. Except Obama is not suggestion anything close to the amount or type of spending which got us out of the depression. I don’t see the similarity with late 1930s FDR at all.

  9. Todd,

    I actually did a college research paper in my economics class on how the FDR Administration spent money on projects in states he needed to win in future election cycles. There is a fairly good summary of what occurred in a book review by the Locke Institute. You can read it by clicking here.

    Gavin Wright writes and researches primarily in this area. This specific New Deal research appeared in his article, “The Political Economy of New Deal Spending: An Econometric Analysis,” Review of Economics and Statistics 56 [February 1974]: 30-38.

    Ultimately, the bottom line is that ANY politician will attempt to spend money and implement programs in areas where they need votes. Essentially, they are buying off votes. Sad to say that both parties engage in this practice with earmarks being the most simple form.

  10. Duke the Dog says

    What got us out of the Great Depression was WWII.

    Unless the Japs attack Pearle Harbor again tomorrow, I think we’ll have to find a different way out of this recession.

    First we need to stop all bailouts and let the eventual, albiet painful, market correction occur.

    It will happen sooner or later. Better to get it over and done with now so we don’t waste trilliions trying to keep dinosaur companies afloat.

    All these bailouts are doing is saddling our children, grandchildren and great grandchildren with debt.

    It’s our mess, let’s deal with it. Stop the madness, stop the bailouts.

  11. Iris asked, “does anyone remember when it only took ONE employed member of the family to sustain a family of five or six or more?”

    Yes, my father did that in the 1950s and 1960s.

    That was a time when the tax rates were more progressive, more American workers were union members and we were in an artificial post-WWII boom because the U.S. was the only industrial power not devastated economically by the war.

    We are not going to repeat that. My father and grandfather’s business manufacturing pants, which had kept our family prosperous even during the Great Depression, fell victim to cheaper imports in the bad recession of ’74-’75, which was the last time we had as bad one-month job losses as the ones reported on Friday for November 2008.

    Globalization is a fact. The tech revolution is a fact. Manufacturing is not going to come back. Conservatives will not allow the high tax rates and high unionization of the Eisenhower years. Elvis has left the building and he’s not about to return.

  12. And, Iris, that has nothing to do with inflation.

    I recommend you take a class in macroeconomics. ASU has a good class in Money & Banking that can help you educate yourself.

  13. What a macroeconomics class will explain is that inflation hasn’t been a critical problem, as it was in the late 1970s and early 1980s, since the severe recession of ’81-82 when Fed Chairman Paul Volcker, with the support of President Reagan, wrung inflation out of the system with sky-high interest rates. Many jobs were lost, but the inflation mentality of the time was gone when it was over.

    There is nothing in inflationary times that will affect a person’s ability to support his or her family as long as that person’s wages rise as much as everything else does, the way COLA’s (cost of living adjustments) do for social security recipients. Unions made sure wages rose along with prices.

    Nixon, you may recall, attempted wage-price controls in 1971 in his “We are all Keynesians now” speech, but that only tamped down the problem, and once controls were lifted, inflation soared. Remember President Ford’s ridiculous WIN (Whip Inflation Now) buttons.

    The problem, in short, for the American worker and the American family, is not inflation but wage stagnation.

    Real wages have been falling for decades, through Republican and Democratic administrations, conservative and liberal economic theorists.

    The crucial problem we might have now is deflation, not inflation. Deflation is what made the Great Depression so devastating.

    A government has two economic weapons: monetary and fiscal.

    Monetary policy is almost useless now. As in Japan during their “lost decade,” interest rates are approaching zero, with little room for the Fed to lower them to stimulate the economy. This is a liquidity trap, “pushing on a string” — if people are afraid to buy and borrow and banks are afraid to lend and businesses are afraid to invest — lowering interest rates (monetary stimulus) is useless.

    So fiscal stimulus is necessary. That’s what Pres.-elect Obama is calling for. Some say his package is too modest and call for at least a $1 trillion boost.

    Kenneth Rogoff, a Harvard University professor who was an adviser to Republican presidential candidate John McCain, is one of them. “They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption,” said Rogoff, a former chief economist at the International Monetary Fund.

  14. DSW – So? *differences* in spending directed to specific states had to do with political considerations. How does this affect the discussion here.

  15. Todd,

    We don’t know quite yet because no specifics have been articulated by the incoming Obama Administration. We only have generalities but those generalities tend to point toward taxpayer dollars and/or national debt being the primary funding source.

  16. DSW – Sorry, I thought we were talking about FDR? Of course national debt and government revenue in large part through taxes will be the primary funding source.

  17. Iris Lynch says

    It is touching that you gentlemen are so interested in educating me.

    Apparently many of you are unaware that you can read a book touting any theory as fact and are of the opinion that if it is printed, it equals ‘written into stone’ a la the Ten Commandments.

    I make my case, whatever it may be, just once. I do not go back and insist. I do not argue. For one thing, I learned early on what a waste of time it was. Secondly, I do not have the emotional investment.
    So if it is important to you, believe that a dollar still buys the same value in goods that it did in the thirties.

  18. Iris,
    You may believe your attitude makes you superior, but it does not. I am happy to hear views which oppose mine and hope to challenge them to see where it leads. You seem to disregard anything which opposes your beliefs. Of course no one believes because something is written in a book it is true, but the fact that an argument for something is laid out in a book or article which can be read and judged based on the reasoning used is much better than relating to anecdotes and then when challenged with ideas resorting to claims that it is a waste of ones time to offer evidence to the contrary.

  19. Iris Lynch says

    It is irrelevant what you were TAUGHT. I will always reside in the reality I have lived through regardless of what I am TOLD. Perhaps inflation of 1-4% a year since the thirties is of no moment to you, since it is small every year and incremental. Then there is compound interest, therefore an average of 2% inflation doesn’t work out to be 150% after 75 years, but far more. The physical evidence of what a dollar bought in the thirties and what it buys now is physical evidence of inflationary forces over that period of time. It is about to accelerate and wages will not inflate fast enough to keep up…and have NOT ever kept up as evidenced by the FACTS that it takes a plethora of family members to support a family now. However, BELIEVE what you wish.

  20. Iris Lynch says

    17. was written prior to your 18. and I thought had not come up on the website for some reason, ergo it was NOT a reply to your 18, but a general response to what had come before.

  21. I’ll take a stab.

    The large fallacy here is that government CREATES anything. It can only seize and reallocate. That is the problem, there is an opportunity cost for taking this money and spending it right now.

    In this case, the money will “be made available.” Really? from where? Let’s see, we already have a mountain of debt, we just spent a few trillion on a bailout, in the next couple of decades previous entitlements are going to grow to a crushing portion of government expenditures. I suspect you are younger, Todd, so are you ready to have you and your children pick up the price tag for this for the next 100 years? Is yours a better and stronger generation that will put their shoulder to the wheel and pay down this debt against the screams of retirees getting their benefits cut? What is the payback plan?

    And don’t say Republicans are just as bad, because, be that as it may, most rank and file Republicans chafe at the spending of George Bush. Democrats only balk at spending if there is a Republican president or congress. Did you notice that the whole “Pay-go” thing went away?

    On the state level, people are screaming that there is not enough money for our Universities. Maybe so, but we spent that on all day kindergarten and adding adults to the CHIP plan. In retrospect should we have spent that money elsewhere?

    They governor’s plan for increasing University funding was having more people play the lottery, and evidently Democrats thought that was a fine plan. We purged our Republicans who voted for that foolishness, did any Democrats even call out their own on this? Of course not, I guess it is Republicans that are causing people not to pay the lottery.

    The government pie is a zero sum game, taking money out now DOES have repercussions for the future. If you are going to redo the new deal, you better be damn sure that it will have the intended effect.

    Unless your intended effect is to grow the size and scope of government even further, then you will be getting your money’s worth.

    Oh, and saying that inflation has not been an issue since the eighties IS foolishness, no matter which economist claims it. The only way to justify this claim is to redefine the meaning of inflation. The Fed’s constant fight against inflation has caused its share of pain in the last 30 years, even if it has avoided Carter-style stagflation.

  22. Pretty easy answer – deficit spending with the hope that since we’re investing in infrastructure rather than writing blank consumer spending checks, the investments will pay dividends in the future. Reagan was big into deficit spending in this fashion rather than that of consumer checks.

  23. While deficit spending will likely be the method of finance for infrastructural improvements, we must remember that everything is subject to entropy. All the investment in the world is not going to stop physics from having the last say. Things are bound to wear out and break down over time. Maintenance is inevitable. And let’s not forget that this type of “investment” does set up a legacy of creating more taxpayer-funded jobs to do the maintenance and upkeep.

  24. framer,
    You bring up several points but I want to address what you claim is the fundamental fallacy.

    How can one say government creates nothing? Of course things are created by government. In the US a great example is the interstate highway system, for instance. I don’t understand when people say this – it is certainly a great rhetorical device, but what is the basis claim?

    Having said that, I assume you are using some other definition of “create” than the normal one so perhaps you could explain the statement. Certainly one could say that in the end only individuals create things, which might be a valid argument.

    You are correct that government uses coercion to do the things it does. From the Pyramids of Giza, the Palaces of the Hapsburg,the US Railways system, or the internet backbone. The difference is hopefully some progression from slavery to people making choices through representative democracy. However, even in that case there is coercion – perhaps this is a justification for taking the anarchist perspective, one that has sadly been mostly lost in the US, but I don’t think you are arguing from that point of view.

    I don’t buy your defense of Republicans either. Sure, I have heard discontent among “rank and file” about Bush’s spending, but these people still hold Reagan in the highest esteem and he pushed huge deficit budgets. Frankly, it seems many Democrats have been much more mistakenly “deficit hawks” than Republicans, if not in word at least in deed.

  25. Todd,

    Arizona supports my spending argument. For the past five years Republicans have been categorized as skinflints right up until the time the deficit appeared, then it was the “Republicans’ budget.” Anyone with any sense knows that is a lie, as was evidenced by the past election results. Big spenders had a harder time getting traction. Republicans who attempted to hold the line, or promised to, were rewarded. Arizona’s Republicans (at least most of them) acted like Republicans. Thus they bucked the national trend. There was certainly no “budget hawking” among Arizona Democrats.

    As far as the “government does not create.” I want to have that discussion with you. This thread is petering out so I will make my argument on my blog in the next couple of days. I’m not trying to put you off, I just want to give the thought and discussion the attention it deserves.

  26. framer – but since the state budget is required to be balanced there is no choice in the matter so it is not a decision between those who want to increase the debt versus those that don’t. I do think it is quite different at the national level were the possibility of budget deficits is a reality.

  27. Todd,

    Evidently there IS a choice because the last two budgets have not really been balanced. Placing spending on the credit card is not really balancing the budget. Arizona has been deficit spending for the past two years.

    Not to mention the last 1 billion promised to Universities that has almost no basis in actual funding reality. Even sillier is the people that scream when the Republican legislative leadership points that out. It was imaginary money! Janet continued to make promises she couldn’t keep and her lap dog newspaper editorials blame it on mean-spirited Republicans. It was like Janet placing Unicorns on the Arizona endangered species list and the newspapers blaming republicans for the death of all of the remaining unicorns.

    Fortunately, Arizonans were beginning to catch on. That’s why Janet is leaving.

  28. Can the author please post his email address?. Need to contact you.

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