Why Obama Is So Deeply Committed to Re-Stimulating the Economy

According to foreign reports, U.S. President Barack Obama announced three successive fiscal stimulus proposals this week, concerning not only new strategies for the construction and maintenance of railway, highway and aviation infrastructure, but also for corporate research and development and facility investment tax incentives. With an expected investment of $350 billion (U.S.), Obama has also pledged to do his best to help the middle class.

Some local political analysts believe Obama is really trying to peddle his economic stimulus plan in order to deflect from economic difficulty and score more political points at a time when Democrats and Republicans are building momentum for the midterm elections. Opinion polls show Obama’s approval ratings falling to below 50 percent since the administration launched the last large-scale stimulus. Even though the U.S. economy has begun to recover, the personal experiences of the public have been painful. Republicans and some economists place the blame entirely on the Obama administration, saying that the policy not only failed to remedy the problem — as reflected in the plight of the middle class (whether sincere or not) — but has significantly increased the budget deficit. Therefore, in this announcement of the newest stimulus plan, the financial burdens of both businesses and the middle class have become a priority in order to address the “blind spots” of the previous stimulus plan and strengthen the weak links of the economic strategy. Last weekend, Obama promised to try to pass legislation to create jobs for the American people, to provide tax relief in the new economic stimulus plan and to build a new economy where middle-class families can bear the burden of university tuition fees, purchase housing and pay for their aging parents.

Political factors aside, the current U.S. economic recovery seems to have entered a critical moment. The critical momentum gained from moderate gains in consumer spending and investment and the continuation of a gradual slowdown in the first two quarters of this year could turn into a period of low growth, or even a “Japanese-style deflation,” characterized by a deep recession. Meanwhile, the White House, rather than sit back and watch the economy readjust and recover slowly, should instead take the initiative to steer the economy forward. As the American economist and Nobel Laureate Paul Krugman stated in his New York Times column, the current situation is just like 1938 when Franklin Roosevelt was president, when the economy was in the middle of digging itself out of the Great Depression, and people tirelessly debated the continuation of the stimulus plan. … To avoid repeating Roosevelt’s premature implementation of his “exit strategy” and hence create a “double dip” in the economy, the administration should continue the policy of stimulating the economy. A rising deficit in the short term is understandable.

The International Monetary Fund believes that given that the U.S. economic recovery is still dependent on support for this policy and on decreasing risks in the economy, in addition to the long term challenges faced by the fiscal and financial sectors, U.S. policy makers need to take “further decisive action” to ensure there is steady growth in the medium term. To this end, the agency suggested that the U.S. government should continue to implement fiscal stimulus policies this year and only begin to withdraw gradually next year.

Since Obama has been boasting about this “combined punch” to boost the economy, why has a clear distinction been drawn by the White House between this plan and the recovery and job stimulus plan signed in early 2009 by Obama of $787 billion (later revised to $862 billion) and argued that this does not add up to a second stimulus plan? Analysts believe that the White House does not want this plan to be used as another excuse by the Republicans to attack Obama’s economic policies. If this plan is publicly acknowledged as another stimulus plan, people will easily conclude from this that the first round of stimulus has failed. This would be equivalent to dismissing completely the hard work the Obama administration has put in for more than a year, making the anticipated losses by the Democrats in the upcoming midterm elections an even thornier situation. Analysts also say the White House does not want the two separate stimulus plans to be viewed as one and the same. The scale of these plans then appears to be more under control and gives the appearance of taking care of one issue at a time, in order to assuage the unease of the American public and foreign investors about the budget deficit.