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President-elect Barack Obama hopes to sign an economic stimulus plan as his first action after he takes office on January 20th. The $775 billion “American Recovery and Reinvestment Plan” includes, among other things, tax breaks for businesses and middle class Americans, investing in infrastructure development, and offering direct aid to states to help preserve crucial social services. Despite their unpopularity among Americans, some Republicans are already declaring they will block the measure if the House tries to pass it. Obama yesterday pledged to consult with Republican lawmakers in discussing the details of his plan. The president-elect plans to deliver a speech this Thursday to outline his economic recovery plan, the details of which are still vague. But, from what we do know of the plan, just how adequate is it? Will it really help ordinary Americans? And will it be enacted soon enough?

GUEST: Doug Henwood, author of the book, “After the New Economy,” and editor of “Left Business Observer,” host of a Pacifica weekly program called Behind the News

Doug Henwood recommends Paul Krugman’s blog to help understand the economic stimulus package: http://krugman.blogs.nytimes.com/

Rough Transcript:

Kolhatkar: So, how much do you know of the plan, and just looking at it—broadly speaking, before we get into the details—do you think that it has the makings or the potential for something that will actually address this recession we’re in?

Henwood: It started out better than it’s becoming in the last few days; it started out looking like a very large spending program—mostly concentrated on infrastructure, with also some assistance to state and local governments and extended unemployment benefits… and for the longer term some spending on subsidies and research and development for clean energy. These were all very good things, but we’ve heard in the last couple of days—in order to appease Republicans—that a very large portion, perhaps as much as forty percent of the proposed plan, will go to tax cuts, which are a much less effective way of stimulating the economy.

Even some of the kinds of tax cuts that are being proposed—the business tax cuts—are extremely ineffective, like investment tax credits, which are given to companies that make capital expenditures. Companies invest because they think they’re going to make money, and they’ll do it if they have—will make the investment—if they have the cash or can borrow it. Right now, it’s very hard to borrow it. Company profits are down, so they really don’t have the means to make investments, and their outlook is not very bright. So, just giving them a tax credit is not going to work. Tax credits are, in better times, an investment tax credit is just a gift to a company that makes an investment that it would have anyway¬¬—so, this is a very, very ineffective form of stimulus spending.

Kolhatkar: And, so, the three hundred billion dollars of the seven hundred seventy-five billion, I understand, would be to essentially extend the tax cuts that Bush put in place?

Henwood: No, it would be oriented more toward middle and lower income people, so, which is a better thing from both an economic stimulus and a social justice point of view.

Kolhatkar: Okay, so there’s the one thing for businesses and then one for individuals…

Henwood: Yeah…

Kolhatkar: Explain the difference between the two.

Henwood: Well, the business one is the one that’s especially ineffective. They’re actually talking about even giving credits to companies that have made losses in recent years. Now, that doesn’t make any sense to me, that kind of rewarding failure…

Kolhatkar: I mean, that would just basically help them perhaps not go bankrupt, but it wouldn’t necessarily create new jobs.

Henwood: No, it certainly wouldn’t; and it just could be a dying operation anyway, so it’s throwing good money after bad. But what really stimulates the economy most effectively is infrastructure spending, and that kind of thing. And the more we learn about the plan, the less of it there seems to be.

And what the politics behind this are very mysterious to me. It’s obviously designed to appease Republican opposition—but the Democrats have fifty-nine votes in the Senate, a large House majority, Obama won with a fairly large popular vote margin—they have some political capital to spend. George Bush barely squeaked into office a couple of times and acted like he owned the world. And with much more of a mandate and a great deal of enthusiasm behind him, Obama is eagerly compromising with the Republicans—it doesn’t make any political sense to me. Okay, if you can’t get it through Congress and you have the Republicans start to filibuster, then maybe you start thinking about compromise; but if you start out compromised, what kind of political thinking is that?

Kolhatkar: And, so, basically, the Republicans—even as an unpopular minority—are still carrying so much clout. But, then, what about the argument that Wall Street supported Obama hugely, wholeheartedly, when he was running for President, is this perhaps also not a nod to Corporate America?

Henwood: Well, to some degree, but Wall Street is very happy with the idea of big stimulus spending…

Kolhatkar: Right, because that means contracts for them…

Henwood: Well, not just that—I think they’re really very concerned about the state of the economy. I read, for example, the Goldman Sachs daily economic commentaries and they’re very enthusiastic about a very large stimulus program. You have the IMF talking about very large public spending programs—this is orthodox economic thinking right now.

Republicans, I think, really represent a kind of provincial, small-business mentality that really doesn’t deserve the time of day. We’ve got big business—certainly big capital, big Wall Street capital—would go along with whatever Obama and Congress came up with, so I just don’t see the point in appeasing Republicans.

I think this is part… let me see… I think there are two things involved. One, the Republicans have a coherent theory—it’s nonsense, but they have a coherent theory about tax cuts—it’s your money, you should keep it, the government shouldn’t take it, the government doesn’t know what to do with your money. The Democrats really have nothing to compete with that. They don’t have an ideology, they don’t have a real philosophy—they’re just pure pragmatists. And, on top of that, we have Obama’s dedication to this post-partisanship—he’s going to end conflict in Washington. But politics is about conflict; there are different interests, different philosophies involved. You can’t have politics without conflict. So this seems to me bankrupt at every level, both the purely political level and also the philosophical/ideological level—and, also, the economic level at this period…much less economically effective turn this program has taken the last couple of days.

Kolhatkar: So, Doug, let’s talk about numbers, if you know any. I mean, the whole plan is supposed to be worth about seven hundred seventy-five billion dollars—even that amount is something that Republicans are unhappy about—but of that amount, what proportion is now going to go toward infrastructure spending, and things like a green economy, and what proportion to what you think are ineffective solutions?

Henwood: Well, the tax cuts are about, I think, three hundred billion or forty percent of the total, which I think is mostly ineffective. Certainly, lower and middle-income people need some help, but tax—these sorts of tax cuts—don’t really mean all that much.

Kolhatkar: So, when you say that, basically people would be getting five hundred, a thousand dollar checks in the mail, and then that’s supposed to help stimulate the economy from that sort of trickle up economic theory?

Henwood: Yeah, and we had these… remember, a year ago the Bush Administration mailed out some rebate checks—that had, it rose/increased retail sales by a couple of tenths of a percentage point for a couple of months and then disappeared, totally forgotten—it was a totally ineffectual gesture. And the economy wasn’t as weak then as it is now. This is just, you know, teaspoonsful into the ocean—it’s not going to do very much at all. It’s quite possible that people will use it to pay the mortgage or pay down debts, which will have no stimulative economic affects at all.

Kolhatkar: So, instead of getting one check, one sort of loan check as a way to stimulate the economy, somebody who is jobless would much rather get a regular paycheck, which means a job, which would be more likely to come from infrastructure spending—things like building up roads, bridges, fixing the infrastructure of the country.

Henwood: Yeah, I mean, if you do the math, about a three hundred billion dollar infrastructure plan—which is where I think it is now, two to three hundred billion dollars—that could lower the unemployment rate by one and a half to two points probably, just using the conventional numbers. That’s pretty significant. And the larger numbers you talk about the greater the affect on the economy would be.

That’s where all of the… roughly there’s a concept in economics called the multiplier effect—for every dollar you spend on something, it generates additional activity. You know, if you build a highway, spend a dollar building a highway, it generates spending on bulldozers and concrete and electricity and oil and all kinds of other things—so that multiplier effect is the key to the bang for the buck of stimulus spending. Infrastructure spending generates another fifty to seventy-five cents for every dollar that’s spent; the tax cuts, just maybe twenty cents additional, or less even. So that’s the kind of… that’s what we’re talking about. You get a lot more bang for the buck out of infrastructure spending. And it’s necessary. Much of our country is falling apart, bridges are falling down…

Kolhatkar: It’s time for an upgrade, basically, on a lot of our infrastructure…

Henwood: It certainly is, I mean it’s crumbling schools, but also for the longer term. Larry Summers—who is a top advisor to Obama—is a man that I’ve had lots of problems with over the years, but he’s been saying some good things recently. And he had been saying that they weren’t just interested in a short-term economic stimulus just to get us out of the recession, but something that’s going to lay the groundwork for a longer term, sustainable economic growth.

And I think spending money on clean energy and other green projects is a very, very good way to do that. It’s absolutely necessary—to save life on earth, for one thing—but the other thing, I think it can generate a really long-term boom out of the transformation of energy and other kinds of technologies to be more environmentally friendly. It would be a very good thing to do from a social and environmental point of view and a very good thing to do from an economic point of view. But, it looks like Republican opposition to that kind of thing is very high, and we’re going to see that chipped away, and it’s the kind of thing that’s really essential for a longer-term strategy.

Kolhatkar: I mean, this is amazing, given that Republicans lost the White House because people were more interested in seeing a Democratic approach to (and Democratic with a big D) approach to fixing the economy; so, I mean, essentially voters, American voters, have turned down the Republican mentality and their ideas for fixing the economy—and they’re still defiant. That’s just incredible.

I want to turn to the issue of jobs once more, Doug. December’s job losses will be—the report from the Labor Department detailing how many jobs were lost in December—will be released in three days, and many are predicting half a million jobs lost. And if that is tallied for the entire year of 2008, we’re looking at a year that would have been the worst for job losses since 1945. Now, Obama has pledged creating three million new jobs through this package. How much of his compromising with Republicans is going to affect this number—three million? Is he still planning three million jobs created with compromising with the Republicans?

Henwood: Well, it’s going to be harder to do. Like I say, the more the mix is shifted toward tax cuts, the less likely he is to hit that three million goal. If we did seven hundred billion in infrastructure spending and maybe some aid to state and local governments, then that would come close to producing the kinds of numbers he’s talking about. But if we do the tax cut route, then we’re not going to get there. But, you know, I think a lot of people… when you said that people voted for a Democratic approach to the economy… they voted for what they thought might be a Democratic approach to the economy!

Kolhatkar: True.

Henwood: Obama made it very clear during the campaign that he was going to be bi-partisan, he’s going to compromise with Republicans, he’s going to end the culture of competition in Washington… he praised Ronald Reagan in a very famous video during the campaign. So, a lot of what people voted for was a fantasy. He made it clear, and you look at the economic advisors he’s surrounded himself with, like Austin Goolsbee—who is a University of Chicago guy, wrote a gushing obit for Milton Friedman—a very orthodox, careful, mainstream guy. So, Summers certainly was talking about big and bold infrastructure spending, but a lot of the other people he’s surrounded himself with are not those kinds of people. And, I think a lot of people didn’t really scrutinize what Obama said and the kinds of appointments he made.

Even now, we’re seeing people who look at his foreign policy appointments—a lot of these guys are neo-cons, or very close to it—yet some people are saying well, it’s just a clever ruse to produce a new kind of policy, this is like Nixon and China all over again. The capacity for self-deception never ceases to amaze me. This guy has made it very clear that he’s a moderate centrist and is going to govern that way. And the kind of boldness that a lot of people would like to see is not going to come from him spontaneously, it’s going to take a lot of pressure from popular movements—and economic difficulties also will do it.

But, you know, the encouraging thing is that Franklin Roosevelt was a very similar guy, very orthodox, campaigned against deposit insurance when he was running in 1932 and ended up creating the FDIC. So, once in office, people change. But, it’s going to take popular pressure to do that, and not the kind of self-deception and self-centering that we’re seeing from a lot of people on the progressive side of the spectrum.

Kolhatkar: Well, Doug, obviously popular movements are crucial to this, but in the short term, I mean, we’re talking about a timeline of a few weeks to get this plan passed. And the timing is crucial; the economy is just plummeting. In Obama’s own words, it’s important to slow down the momentum of this recession. What about listeners trying to post what they think needs to happen on the web forums and the web feedback, online feedback, that Obama’s campaign is collecting in his lead up to the inauguration? I mean, they are trying to be probably more transparent—at least they seem to be trying to be more transparent—than any presidential transition in history, trying to get feedback from across the spectrum from Americans about what they want to happen. Do you think that that is, at the very least, something that listeners could do to urge Obama to back off on the tax cuts and to emphasize the infrastructure spending?

Henwood: Oh, I think that would be a very, very good idea. I also think the old-fashioned approach of calling your Congressperson, e-mailing or writing letters to your Congressperson, that can have an effect. It doesn’t take many calls to get the attention of Congress. So, if people started calling in large numbers and saying this is nonsense… stop compromising with the Republicans… Democrats have a large Congressional majority; they don’t need to start out so compromised. I think if people made that point to their Congress people, and also make the point that the public is hungry for something bold that’s going to reverse this sense of economic collapse, then that might have an effect as well.

Kolhatkar: It’s amazing! Even when they’re winners, they act like losers!

Henwood: I don’t get the politics of compromising even before you start the fight; that makes no sense to me at all.

Kolhatkar: Good point. Doug Henwood, any websites you’d like to recommend for listeners to try to figure out the details of this plan as it evolves?

Henwood: Well, I should say Paul Krugman has been writing some very good stuff in his column in the New York Times, his blog on the New York Times website, so he’s been taking apart the numbers and doing good political analysis and agitation, so it’s a good place to start.

Special Thanks to Lisa Petras for transcribing this interview.