Obama's Economic Recovery Plan Needs to Focus on the Most Vulnerable Sector of the Economy

Is the issuance of the proposed second economic stimulus checks the solution to the US economic woes? Or are these band aids to soften the impact of the economic recession?

The Latest on the US Economy

Recent indicators are painting gloomy economic scenes. The budget deficit ballooned to $455 billion end of fiscal year (September 2008). It is projected to increase further to 1 trillion in 2009. The state and localities are also grappling with budget deficits. This means that these agencies are considering increasing taxes or borrowing money. Either way, they cannot continue projects in the pipeline for lack of funds.

Disposable income fell remarkably at an annual rate of 9 percent. This is the lowest level ever recorded since 1947. This means that the available income an American receives after tax is just barely enough to cover basic necessities or maintain their standard of living.

The Commerce Department also announced that the 3rd quarter period showed a 5 percent rate of decline in economic activities. The announcement is exacerbated by the recent news from the auto industry. This sector is also requires some form of financial rescue plan.

Unemployment rate is forecasted to grow to 9 percent in 2009.

The credit crunch remains. The housing foreclosures continue. Consumer spending is at its lowest.

The economic crisis has now taken a human face. Low to middle income Americans have lost their homes, their jobs and their life savings. Poverty in America is projected to increase since the economy is unable to generate jobs. Thus, homelessness, deep poverty and destitution will be the harsh outcomes.

Obama's Proposed Economic Stimulus Plan

The economic outlook for 2008 and 2009 is gloomy. It will remain grim until a well-designed and rapid-acting economic stimulus plan is unveiled. Thus, the proposed economic stimulus checks are only economic band-aids unless it comes with a comprehensive, well-thought out economic recovery plan. Obama's economic stimulus plan needs to consider the depth of the economic crisis.

Most Vulnerable Sector in the Economy

The most vulnerable sectors in the economic downturn are the people with incomes below the poverty line. In quantifiable terms, the people in poverty are expected to increase to 10 million next year. Thus, the caseloads of food stamps applications and Temporary Assistance for Needy Families (TANF) program, a cash assistance program, are already increasing by wide proportions.

Another defenseless sectors are the people below 25 years of age who lack high school diplomas. This group can't avail of unemployment benefits due to lack of work history.

Another sector is the unemployed and currently not raising any children in the age group of 18 to 50. This segment do not qualify for any form of cash assistance and unemployment benefits. Furthermore, they can only avail of three months of food assistance every three years. There is almost no safety net for this group of people.

If this sector will not have direct help in the next few months, breaking stories in the news will veer away from economics to actual deaths, crimes, destitution and homelessness. This sector has reached the last of its resources.

Economic Recovery Plan

In order for the economic recovery plan to stir economic activity, the proposed tools must focus on infrastructure investment. This strategy is "shooting two birds with one stone". While it generates the needed jobs for the most vulnerable sector, the spending is an investment on America's future. The tactic strengthens the infrastructure needed for the economy to move forward.

Thus, the proposed spending must be on projects to repair buildings, national roads, repair, maintain and construct school buildings and improve wastewater treatment system. Specifically, infrastructure projects that are "ready to go" must be re-evaluated if its implementation will yield a viable rate of return.

Secondly, federal aids to the state and local governments are imperative for these agencies to efficiently deliver their mandates. This is a better alternative to increasing taxes or cutting on their services. The deficit in the current budgets of the state and localities can be addressed by raising taxes. This is counterproductive in a recession where the citizens are already crying for financial relief and overburdened with debts.

Thirdly, spending must focus on R & D (research and development) for alternative sources of fuel energy and energy efficiency. The rates of return for these kinds of projects are high. It will also be an investment to the future. It will make the US less susceptible to similar recent oil prices panics. This strategy will also increase jobs in the long term.

Conclusion

In conclusion, the new economic recovery plan of President Elect-Obama must assist the most vulnerable in our economy. This assistance may be in the form of expansion of unemployment benefit criteria, temporary increases in food stamps benefits, temporary increases in cash assistance, and rental housing vouchers. Stirring the economy by spending is a viable option if it is focused on infrastructure which is seen to generate jobs and at the same time an investment to America's future. The resulting increase in budget deficits to 1 trillion dollars will be worth it if we can use it not as economic band-aids but part of an overall plan to address the real economic problems of the US. If the Obama government will sporadically implement a recovery plan without focus and understanding of the real problem, the children of America will bear the costs of this mistake. By taking care of the needs of the most vulnerable sector as a priority in Obama's economic agenda, the needy will have a purchasing power to meet their other obligations. If this sector is overlooked, this vulnerable sector will experience panic and resort to destitution, violence and crime.

Sources:

Sharon Parrot "Recession Could Cause Large Increases in Poverty and Push Millions Into Deep Poverty",

Jared Bernstein and John Irons, " Bringing us to Bad to Better", Economic Policy Institute

Daniel Altman, "Q & A with Joseph Stiglitz", Managing Globalization

Beth Fouhey and David ESPO, "Obama: Economic Rescue will Trump Deficit Fight", Associated Press