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I was checking out President-Elect Barack Obama's weekly address to the nation on YouTube this afternoon and several interesting points were brought up with regards to his plan to create jobs and push pass this recession.



It is real encouraging to see a direct emphasis placed upon increasing widespread use of broadband technologies here in the USA.  We are considered by many to be the most industrialized nation in the world and it's crazy to think that we are trailing so many countries with regards to broadband speed and availability.  As a tech nerd, it's reassuring to see a president who will be devoted toward fixing internet related issues.

I am also interested in learning more of Obama's plan to spend a considerable amount of resources on infrastructure and energy conservation.  I see this idea much more preferable than the idea of rebate checks or tax breaks because it will help to place money back into the economy while also making significant improvements on building or road efficiency.  To get out of this recession, we really need to start spending money as a nation and the best way to jump start that is to get the government spending.  In any economy, money sees a multiplier effect and a dollar spent is not necesarily an exact dollar for dollar transaction.  As money is saved in banking, a small percentage of it goes into reserves and the rest is typically lent out by banks to others for spending.  For example, when banks are forced to keep 20% reserves, a $100 has a total lending power of around $450.  Thus, it is important to have banks lending and have people willing to borrow money in order to reach reach maximun spending potential and have a thriving economy.  As people spend and save, that money is passed along and through lending a single dollar can have the power of nearly five dollars.  However, when people aren't spending or lending (as is typically the case during a recession), a dollar doesn't see that passed on benefit and we lose out on perceived wealth.

Obviously this recession is the result of many bad decisions over the last five to ten years and fixing the economy isn't as simple as going out and forcing banks to lend.  In fact, we've been trying these methods and they haven't really been working.  Many might remember that the government passed a tax refund last summer which gave each taxpayer up to $600.  Why didn't this money see a significant multiplication effect and benefit the economy?  Well, studies have shown that people didn't actually spend the money they were given.  Instead, they used the money to pay off credit cards, car loans, or mortgages.  That may be spending money, but it doesn't have much of a multiplier effect because it goes toward paying off debt and not toward making expendatures which benefit the economy as a whole.  We don't see the multiplier effect either because the money nevers goes to banks, so it isn't allowed to be lent out and given a chance to multiply.  It just goes into the pockets of credit or mortgage companies.

Essentially, the $700 billion dollar bailout of Wall Street was suppose to work because the government was giving large sums of money to lending firms under the pretense that these companies would in turn give the money to businesses for spending.  Should work and give us that wonderful multiplier effect as these companies spend the money and it goes back into banks for further lending, right?  Well, not so fast.  Instead of making this bailout money available for lending, many of these banks have been holding onto the cash in anticipation of needing it over the next two years to pay their own expenses.  Again, no lending or spending and no growth for the economy.

So back to the topic at hand, how will infrastructure and green technologies help the economy?  I think we can all agree that higher aggregate spending is good for the economy, so now we just need to figure out which way is best to kickstart that spending.  Rebate checks didn't work and it doesn't seem that the bailout of Wall Street has done much either.  One way or another, it's going to take more money from the government and lots of it.  So, bascially what Barack Obama and his administration is suggesting is that we take the addition money that we need to spend and instead of giving another bailout or rebate check, we spend the money on improving our infrastructure and energy efficiency.  The federal government will take proposals on how to best spend money on the improvement of roads or building efficiency and then give that money to those with the best proposals. 

How does this help get us out of the recession?  Well, states will receive this money and then contract out local construction firms to build roads, engineers to develop new bridges, heating specialists to make buildings more energy effiecient, etc.  The money directly goes into the hands of American workers while also providing a lot of new jobs to help bring down our growing unemployment rate.  Workers then receive paychecks for their work and spend it at local businesses who then save the money in banks.  Hopefully then we will see our multiplier effect and a greater perceived level of wealth as well. 

So what if this plan doesn't work and we don't see such an effect, like with the bailout or rebate checks?  Here is the additional benefit this plan, we still get new roads, bridges, better buildings, and additional jobs for American workers.  The saved money each year on road repair or energy bills will help pay for the costs of these projects alone in the long run. 

It's basically the "New New Deal" and a similar plan to that which Franklin D. Roosevelt proprosed which helped the nation recover during the Great Depression.  While Obama may have history on his side, we can only hope that this plan has similar positive effects on our current economic situation and brings us out of this steepening recession.

(EDIT: Quick note, just wanted to stress that I'm not looking at this as a "definite fix" to get us out of our current economic situation, but instead as a quick commentary on how Obama's plans in the video could benefit our current situation. Obviously, the problem is much larger and deeper than this and many other factors which go into fixing an economy.)