Nobody in their right mind envies President Obama's position between a jagged rock and an economic hard place. But nor can a nation overlook the epic blunders of a grossly failed response strategy.
To his credit, the President finally appears to grasp the central role that resuscitation of the country's industrial base -- and reconstruction of a crumbling infrastructure -- must play in any response strategy with even a remote chance of sustainable benefit. Of course, he could have saved face -- and a considerable fortune in mostly wasted, debt-spawned capital -- by directing a greater portion of his initial stimulus plan into these traditional engines of growth.
On Labor Day, President Obama unveiled a $50 billion spending proposal to an enthused crowd of union workers in Milwaukee, Wisconsin. Following an initial push to build or improve the surfaces upon which planes, trains, and automobiles pass, this latest proposal would then seek to establish a national infrastructure bank to support green transportation initiatives, high-speed rail, etc. It's an ambitious plan, especially considering the ever-expanding spate of fiscal deficits stretched out along our horizon.
The President proposes to fund these expenditures by eliminating some tax breaks for oil and gas companies. While that may sound like an easy fix, I would point out that those changes are likely to filter down to fuel prices, which themselves could pose a barrier to economic growth.
Deja vu all over again
From the time we caught a sneak preview of the $814 billion stimulus plan back in January 2009, I expressed concern over an allocation model that would see only about 5% of all spending directed to infrastructure. Bellwethers like United States Steel (NYSE: X), I argued, would feel substantially understimulated.
Soon after, Caterpillar (NYSE: CAT) CEO Jim Owens expressed dismay at estimates that only about 20% of all stimulus spending would support activities beneficial to his company. By April of 2009, Owens was removing the gloves, stating that he would "rather be President Hu than President Obama." I pondered whether Obamanomics could save Terex (NYSE: TEX) from the brink of failure, but in the final analysis it was a pair of key strategic moves that breathed life into the stressed manufacturer ... not the elusive impact of stimulus.
Throughout this trying period for American industrial bellwethers, Nucor (NYSE: NUE) CEO Dan DiMicco provided the most persistent and realistic voice of reason, calling for a reversal of wasteful deficit spending and a targeted initiative to jump-start the domestic industrial machine. After observing the folly of initial attempts to address the economic crisis, and contrary to popular opinion at the time, he also correctly predicted that this would become the "granddaddy of all jobless recoveries." The principles of his plan for rebuilding American infrastructure are discussed here, and can be viewed at Nucor's website here.
Now, some 18 months after he visited a Caterpillar plant in Illinois to tout his massive stimulus bill, President Obama appeared in Milwaukee to unveil his fresh initiative. In the very city where mining equipment manufacturers Bucyrus (Nasdaq: BUCY) and Joy Global (Nasdaq: JOYG) thrive -- largely on the robust global commodity demand that China's alternative stimulus strategy successfully promoted -- Obama has returned to the well for a second chance at jump-starting American industry. One can only hope that this latest effort will not be as fraught with damaging and embarrassing misappropriations like the $18 million-over-five-years redesign of government's Recovery.gov website. Don't hold your breath.
The dastardly debt debacle
Without question, today's proposed $50 billion infrastructure initiative can not be viewed through the same lens as the similar expenditure contained within the American Recovery and Reinvestment Act of 2009. For starters, the election-year political climate and increased public concern over expanding sovereign debt make its passage through Congress a decidedly uphill battle.
Also, the elapsed time that we've been mired in this economic weakness has a cumulative impact (not to mention threats of negative feedback loops); essentially adding weight to the lead collar wrapped around the economy's neck. For example, the minute difference between the August U6 unemployment rate of 16.7%, and the 16.4% rate recorded 15 months earlier, may not actually be so minute from the perspective of economic impact. The longer unemployment remains elevated, the more stagnated our economy becomes, and the heavier the burden a given stimulus measure will be tasked to address.
Therefore, I believe the most opportune time for well-targeted industrial stimulus and infrastructure investment already transpired at the outset of this economic crisis. Dollars heaped onto the problem today are likely to have a more muted effect.
I personally have never been comfortable with the strategy of employing deficit spending to address a debt crisis. Although President Obama's latest $50 billion plan finally targets the right segment of the economy, it nonetheless strikes me as more of the wrong formula, at the wrong time, with paltry chances of even passing through a divided Congress.
But I'm just one Foolish voice among millions. Please take a moment to share your reaction to this proposed stimulus in the comments section below.
