Microeconomics Obama’s Economic Recovery Plan The 2008 U. S Presidential election brought to power the Democratic Party’s candidate Barrack Obama to the oval office in the White House. The election had been marred with contentious issues of social, political and economic content. However, the issue of the economy got major attention as a result of the sub prime mortgage crisis, the ensuing credit crunch, an economy moving into recession and the bankruptcy of giants like Bear Sterns and Lehman Brothers, not to mention the bail out of the Insurance giant AIG and the woes of Detroit’s Big 3 automakers, the hallmark of the U.
S automobile industry. The Obama administration’s economic recovery plan is a two-pronged approach. The first half deals with massive investment in the factors of production, public infrastructure and new technologies to allow the United States to become more competitive and to raise aggregate demand in the economy. These measures aimed at propping up demand will be accompanied by a lax monetary policy with near zero interest rates that would be aimed at encouraging private sector credit off take and unfreezing credit markets. Under this fiscal stimulus plan, $787 billion will be spent to make the U.
S economy more competitive and to raise demand. The second leg of the economic recovery program is to restore confidence in and normalcy to financial markets. This involves a massive program to work with public and private partners and aim to prevent any other major bankruptcies, as was the case with Lehman and to work constructively with financial institutions through monetary and non-monetary measures so that those banks with toxic assets on their balance sheets become more secure and financial markets calm down. Support for the Obama program is far reaching.
If one picks up an economic textbook, the greatest admirer of Obama’s policies right now would be Sir John Maynard Keynes, the greatest economist of the 20th century along with Milton Friedman. “Recessions involve the private sector lacking confidence in the economy and hence households spend less and factories cut back on production. In such a situation, it is imperative that the government intervenes to spend so that the private sector matches the increase in demand by increasing supply so that overall stability is restored and confidence returns” (Keynes, 345).
Intellectuals and entrepreneurs in modern times also lend tremendous support to Obama’s plan. “ By investing in new technologies now, especially alternate energy, the United States would be booming by 2015 as it would be able to achieve production at lower cost through efficiencies in the usage of energy and product development” (Bengali, 24). Furthermore, “the U. S fiscal stimulus program is an important step as it would allow not only the US economy to stay afloat, but countries heavily dependent on trade with the United States to continue surviving, without risking a major world wide recession” (Manjrekar, 71).
However, there is ample opposition to the plan too. “ The size of the fiscal stimulus program coupled with the earlier Troubled Asset Relief Program worth $700B would lead to a huge budget deficit, difficult and costly to finance, exposing the country to a major structural shock going forward” (Mason, 41). Furthermore, “government intervention and bail outs would only lead to a departure from the liassez faire principal, leading to inefficiencies creeping into the economy as businesses and corporations increasingly rely on state aid” (Marion, 98) and “ Unnecessary expenditure on new roads and bridges wont help jobs in the auto industry.
What is needed is a more proactive plan at addressing the wheels of credit, so that consumers start buying again” (Irfan, 87). All in all, the overall atmosphere across the world shows immense support from Obama. On a personal note, although we might differ from his tools at combating this economic downturn, the overall agreement remains that demand has to pick up so that the slide can be reversed. Only time will tell how successful the Obama administration is. Works Cited Grant, Susan.
Stanlakes: Introductory Economics. Longman,2002. Bengali, Dr. Kaiser. “The Sub Prime Menace & Our Response. ” Financial Flicker 17th March 2009: 24-26. Manjereker, Snajay. “A Fiscal Stimulus For The World?. ” South Asian Economist. 12th April 2009: 70-75. Mason, Jeff. “The Fiscal Bomb. ” Pakistan Economist (reprinted). 15th May 2009: 41-45. Marion, Elizebeth. Forbidden Intervention. The Gulf Economist. 07th April 2009: 97-99. Irfan, Sarim. A Tale of Two Presidents. Financial Fliker. 15th April 2009: 85-89.