The most realistic response to that question is probably “couldn’t hurt”. President Barack Obama’s speech Thursday night was close to what had been leaked in the days prior and, as such, it was about as bold as it could be under the current circumstances. That does not mean that this is the plan that will shove the U.S. economy back towards recovery, but there is little in the plan that could be judged controversial either. It was a speech that was long on inspiration and cajoling yet somewhat short on what could be construed as drastic remedy.
The challenge that faces the political establishment right now has been pretty clear for months. The two biggest economic issues require actions that are diametrically opposed to one another. To fix the debt and deficit the government has to impose a strict austerity plan that would involve severe cuts, revenue hikes and all manner of actions that would also result in a slowed economy. For evidence of what austerity means to a given economy, look no further than what has been taking place in Great Britain and other European nations. To shock a $15 trillion economy into substantial growth will take far more than $450 billion, especially when half of that amount is in tax cuts as opposed to direct stimulus.
The plan was as much about tax cuts and incentives for business as it was about new spending initiatives, and that was by design. This was a plan designed to be as palatable as possible to the GOP. This doesn’t means that Republicans will pass it swiftly or at all, but it will be much harder for the them to oppose this idea on its face as half of the plan involves tax cuts for which Republicans long have been advocating for.
As one would anticipate, there is substantial difference between the opinions of those who would call themselves Keynesians at heart and those who come from the more conservative side of the debate. There is also some level of consensus when it comes to some key points. The majority held that tax cuts will not really do much until later in 2012 and that too little of the plan is short-term while too much of it will manifest in 2012, at the earliest. The view of most economists polled was that the plan was better than expected in terms of balance and size but that it was still far too limited to have much of an impact.
There will be far more evaluation of the plan in future weeks but for the moment the economists fall into three camps on the plan. The first group essentially is committed to the notion that the government has to suspend concern about the debt and deficit until the economy is back on a healthy growth curve. The second group of economists hails from the more conservative side of the debate and wants the focus to stay on debt and deficit reduction over all else. They assert that austerity has to be the focal point despite the very real pain that comes from such an effort. Then there is the third group that takes the position that something is better than nothing. They agree with both of the other positions in part: with the first group in asserting that it is too little to make a real difference and with the second group that it makes the debt and deficit issue that much harder to deal with.
Source: NACM Economist Chris Kuehl