Faculty & Departments

Finance NEWS

Will Obama turn economy around?

by YaVonda Smalls
Publication: The South Bend Tribune

November 11, 2008


Local experts see no quick fix.

With consumers across the nation facing rising foreclosures, food prices and unemployment, it's no question that the economy was on people's minds going into this year's presidential election.
So now that Barack Obama is president-elect, what could this mean for the economy?

Several area officials and experts have provided their thoughts to this very question:

Scott Tap ley, vice presidentportfolio manager for 1st Source

The most immediate potential for Obama to positively impact the economy may be psychological. By definition, a majority of the populace is happy with the election results, and that can provide some lift all by itself.

Right now, Obama has the world's undivided attention, and during the usual "honeymoon" period new presidents enjoy, he will have a window in which he can steer legislation, attitudes, and agendas with greater-than-usual ease.

I think everyone expects his administration's early focus will be predominantly on shaping the government's ongoing response to the current crisis and implementing new programs and policies he believes will jump-start the economy and attempt to prevent reoccurrences of recent problems.

More specifically, Obama recently expressed that aid to the auto industry is a high priority. There has been speculation that a large infrastructure (i.e., building schools, roads, etc.) spending program may be on the agenda for the first 100 days to help create jobs and jump-start the economy.

Additionally, I would expect the Democratic Congress to quickly accommodate his proposal to "spread the wealth" by enacting changes to the tax code that will put more cash into consumers' pocketbooks.

Phil Damico, director of business growth for the Chamber of Commerce of St. Joseph County

It will be very interesting to see how quickly he attempts to get the economic initiatives rolled out, that he highlighted during his campaign.

My thoughts are it may take up to at least two years to see the effects of his economic recovery plan. In my opinion, his administration has three immediate tasks.

The first biggest challenge that may face him is how to first restore consumer confidence, which is and has been down for several months. The second biggest hurdle is how do we help the hundreds of thousands of people, each month, that are currently displaced from their jobs and are out of work.

The other big challenge is how will his plan start the process of getting our economy out of the current recession and to help restore our financial markets to stable conditions. There is no doubt that his administration has several huge tasks ahead of them.

Jeffrey Bergstrand, Department of Finance, Mendoza College of Business, University of Notre Dame

First, there will be little immediate impact on the economy for the rest of 2008 from the election outcome.

The economy is moving more deeply into a recession, that will likely last through most of 2009, with likely sluggish growth in 2010.

Likely policy implications of the election is that the president and the Democratic Congress will likely pursue fiscally expansionary policies initiated in the spring of 2009.

These are likely to include expansionary government expenditure policies, perhaps on health care initiatives, expenditures to foster alternative energy initiatives, and increased expenditures for public education.

There will also likely be a tax cut for those earning household incomes of $250,000 or less. Both policies will tend to fight the recession that is unfolding, but cannot prevent it. Such policies are likely to be accompanied by accommodative monetary policies, ensuring little rise in shortterm interest rates throughout 2009.

Grant Black, School of Business and Economics, Indiana University South Bend

His overall impact on the economy is unclear at this point. While he's ushered in a sense of hope in the future for many people, it is not evident that will translate into substantive changes in the economy.

Despite the hopeful expectations, the stock markets dropped immediately after the election, an indication of the realization that the economic conditions are still bad and will remain so for some time.

He immediately faces the daunting task of turning the tide of a recessionary economy and the burden of what is projected to be the largest federal deficits in U.S. history in 2008 and 2009.This massive budgetary constraint will prevent him from pursuing policies, such as health care reform and investment in alternative energies, for some time.

To raise revenues, he would have to increase taxes of some kind; he has suggested raising corporate tax rates and not extending the Bush tax cuts on wealthier Americans. However, he may have to delay those tax increases to prevent creating further fuel for slowing down the economy. His immediate focus will be on continuing to deal with the bailout plan and considering a new stimulus package in an attempt to stimulate quicker recovery. A new stimulus package may provide minor shortterm help, but as seen with the recent stimulus, the effects can take considerable time to be realized and may not yield the expected outcomes due to extremely cautious consumers.

In addition, he faces the effect of time lags, which can reduce the effectiveness of economic policies. He will not take office until early 2009 and policies will take some time to develop, as well as work through the economy once enacted. These lags lengthen the time it would take to see any effects on the economy.

In the longer term, it will remain to be seen what the true impact of his proposals will be if they are able to be implemented.

###