Arasmus

President Obama’s First Weekly Address – Transformation and Transparency

Posted in Economics, Politics by Arasmus on January 24, 2009

Here is the first weekly presidential address of Barack Obama. In this broadcast he describes the recovery plan in greater detail. You can see the text of this address on this page and you can stay up to date on the latest news from the White House by checking the new White House blog.

For me the top level concerns that I am glad he underlined in this address are;

(1) that the transformation of the US economy should be the primary focus of the recovery plan with stimulation of the economy a secondary effect and not vice versa. At present the Republicans on the Hill are on the other side of this issue – seeking tax breaks for the wealthy (quel change?) rather than investing the money today to yield greater and more sustainable returns tomorrow.  This is not the oft-cited example of Friedman economists because in this case we must transform and stimulate, rather than merely stimulate the economy.  Whether it was the dawn of the nuclear age, the space-race or the internet, the history of the US economy demonstrates that the great leaps forward were initiated by the state and then developed and expanded by the private sector.  So it must be with alternative energy. The network effects of the current out-dated means of energy supply and usage are so large that only the state is powerful enough to point the market in the right direction.  It is vital that the state do this in the right way, but do it, it must.  It must not pick its favorite candidate for the energy of the future, but it must offer rewards and incentives for whatever source achieves the metrics that it defines.  I believe that one important element in creating this fertile environment is to introduce a cap-and-trade carbon market so the real cost of pollution can be assigned to dirty-industry and clean-industry rewarded.  By contrast, the alternative favored by the Republicans, giving people cash, will not lead to solar panels on roofs, it will not lower our dependence on oil and it will not lead to better schools. We must make this transition at some point between now and when oil runs out. As time passes the pain of climbing energy costs will increase. We are peculiarly fortunate that if we effect the stimulus that we require by making this transformation today we will kill two birds with the one stone and position ourselves to lead the next phase of global economic growth. The consequence of a stimulus package that is in the majority composed of tax breaks to the wealthy, will be that at some point in the future we will still have to transform our economy to alternative energy but at that point we will have to do so with less money, more debt and an economy drained of its vigor after a decade of high energy prices. Its always better to bite the bullet when you still have teeth!

(2) transparency and accountability are not preferable – they are essential: without transparency and accountability there is absolutely no doubt whatsoever that the taxpayer will be cheated and robbed by immoral private-market partners. The behavior of contractors during the Iraq War offers shocking support of this claim (see The Three Trillion Dollar War by Nobel Laureate Joseph Stiglitz and Linda Bilmes). Indeed, one only has to look at the behavior of individuals like ex-Merrill Lynch CEO John Thain (spent $1.22 million redesigning his CEO office last year while at the same time failing in his role of steward so badly that the company had to lay off thousands of workers and was eventually bought out by Bank of America) to realize how callous and clueless powerful individuals can be when they are not supervised, even in times of grave national emergency.

So far, so good. We move forward.

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