By Robert Kuttner
Excerpted From Obama's Challenge
Reprinted with Permission

Repairing a Damaged Economy

    Make no small plans. They have no magic to stir men’s blood.
    —Daniel Burnham

When Barack Obama takes office as America’s forty-fourth president, he will face an acute, three-pronged economic challenge. The financial system will be in crisis to a greater degree than at any time since 1933. America’s international imbalances will be on a worsening downward slide. And the economy will be in a deepening recession supercharged by falling consumer purchasing power, declining housing values, and cascading business losses.

In addition, he faces four chronic problems that recession will only intensify. The recession will exacerbate a thirty-year trend of increasing inequality and insecurity. The crisis in energy and climate change will be deepening; the unreliability and cost of health care will be relentlessly worsening. The decay of America’s public spaces and facilities will persist. All of this will require a more activist use of government than we’ve seen in at least four decades.

As we saw in chapter 3, real obstacles to change are compounded by attitudinal ones. Assuming that he is not disabled by an undertow of dubious counsel, what exactly should Obama do? He will have no shortage of advice, much of it contradictory, and the risk will be either to aim too low or to run off in several directions at once before having a clear strategic plan.

At every step, he needs to restore confidence—not just with inspiring words or grand aspirations, but by demonstrating that help is on the way. He also needs to transform prevailing ideological assumptions, so that the practical help attracts wide support and builds public approval for even bolder measures using activist government that will take longer to enact—and to reclaim support for the more fundamental progressive idea that government plays a constructive and necessary role.

In Roosevelt’s famous First Hundred Days, FDR launched dozens of initiatives. Within just over three months, fifteen pieces of landmark legislation had passed Congress and remade the relationship between economy and government.

Obama does not need to match that record. But at the outset of his first term, he does need to address the economic emergency on three tracks. Longer-term reforms such as universal health insurance can come a little later.

First, Treasury Secretary Paulson’s policy of ad hoc financial bailouts needs to be turned into a more systematic program, with explicit principles of prudential regulation. The recapitalization of America’s damaged financial system must continue, perhaps at an expanded scale. But it needs to be part of a coherent strategy for restoring a sound financial system—one that the Bush administration has been incapable of creating. Second, since the housing collapse is so central both to the damaged condition of America’s credit markets and to falling consumer demand, Obama needs to work with Congress on a much more robust housing and mortgage rescue program. The Frank-Dodd mortgage refinancing law and Fannie Mae–Freddie Mac guarantee enacted in late July was not a bad start, but it is not enough to do the job. And third, we will need a dramatic expansion of public spending, well into the hundreds of billions of dollars, as classic anti-depression medicine.
Begin with Low-Hanging Fruit

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