By Robert Perrego, at 8:36 am on November 24th, 2008
Once again the fact that the election was this year and now with the administration transition period limbo underway, this political turmoil is having a negative effect on the markets and the economy. A few weeks ago Treasury Secretary Paulson indicated he was only going to release half of the TARP funds leaving the remainder to the new administration.
This was either an indication he had no idea what to do with the money, that Paulson had all of a sudden been overcome by a non-partisan wave of fairness, or that Hank simply wanted to pass the buck ($350 billion of them) on the plan in the the event it blew up in his face so that then at least only half the TARP’s spending decisions would be on his head. Luckily, Paulson has emerged from his state of shock and paralysis and is saying he might spend it NOW – when it is needed.
Seeing as there was such an urgent need for the TARP in the first place, urgent enough to interrupt the worlds largest circus of an election, why are we waiting months to spend the second half of the money? Last time I checked stocks were pointed straight down and current market estimates are for a 5% GDP contraction in Q4 2008 and 3% down in Q1 2009. This money is needed NOW – not after the inauguration.
Obama has stated that he is planning as much as an additional $175 billion for a stimulus plan for the repair of public roads and bridges in much the same spirit as The New Deal under Roosevelt. This program will create repair crew jobs and fund contracts to firms involved in this sector just as The New Deal was crafted to put people back to work. In this aspect it seems a good idea to me, but there are a few pitfalls that need to be avoided and Obama needs to be cautious in how he implements such a plan for the following reasons;
1) Financially strapped states will immediately cancel their current road and bridge repair projects and funnel their money to other spending needs the second they see Obama stepping in with federal money. Money in any budget is fungible. The Obama administration needs to be aware of what the states were going to spend and implement their infrastructure along side these existing programs (if any) such the one plan does not simply cannabalize and replace the jobs and the spending of the other.
2) These contracts to do this work should be awarded along previous followed practices of putting them out for the bid and taking the lowest bidder, but the priority here is NOT saving every dollar and being efficient. The priority in this plan is creating jobs and getting people back to work so the awarding decisions of these contracts should still be very mindful of avoiding waste and being run efficiently, but also of importance should be the number of people put to work.
3) What projects and in what areas will the money go to? It might take quite awhile to decide in what states or cities and on what highways or bridges the repair is most needed and in what amounts. This issue contains the highest potential for political games and malfeasance. Does Obama spend all this money in the urban areas and states that voted for him? For example, funneling a higher percentage of the money to Chicago projects than towards the possibly more pressing needs in the State of Georgia will send a clear message that it is business as usual in Washington D.C..
Whether or not this is the right idea, the spending and stimulus is needed sooner than it will be approved and rolled out unfortunately. All this promised aid is nowhere as the market and the economy can do but one thing right now – wonder what Obama would do.
