Posted on Sun, Dec. 14, 2008
last updated: December 14, 2008 03:59:06 PM
DILLON, S.C. — Talk in Washington of the coming massive economic-stimulus program is capturing attention in this small Southern town, providing a glimmer of hope in a poor area that's had little reason for optimism of late.
"The economy has gone down. You've got people around here that you know, that you wouldn't think it, but are losing jobs left and right," said John Huggins, a local representative of the National Cotton Council, which promotes the state's cotton from "dirt to shirt."
What makes Dillon unique is that it's the hometown of Federal Reserve Chairman Ben Bernanke. And despite a population of just 7,500, it also received two visits during the campaign from President-elect Barack Obama, who came to see what's long been billed as an abysmal school system.
The U.S. economy is in the worst economic downturn in at least a quarter-century, perhaps since the Great Depression. Obama is preparing a massive stimulus plan, the likes of which haven't been seen since that dark period of American history. The proposal is generating lots of discussion, from the corridors of power in Washington and New York to the coffee counter at Dillon's Charcoal Grill.
Rural Dillon won't become rich under any stimulus effort. It's unlikely to garner special attention, even if the world's most powerful banker hails from here. However, there's much at stake in a stimulus plan for Dillon, and for tens of thousands of other small communities across the nation.
"Generally in a downturn nationally, it really doesn't affect Dillon. And vice versa, when the economy is really humming nationally, we don't feel it either. But this one has," said Todd Davis, the town's mayor.
South Carolina, like many states, plans across-the-board cuts in state government spending.
"Being a poor county, we tend to rely on every facet of the government: for Medicare, for Medicaid, social services and that kind of stuff," Davis said, pointing to the need for federal help.
That's where Obama's stimulus program comes into play.
The president-elect has provided few hard details of the stimulus proposal that he and Democrats in Congress hope to push soon after the Jan. 20 inauguration. But economists expect his plan to include stepped-up federal aid to state governments and perhaps a payroll-tax holiday or middle-class tax rebate.
In his radio address Dec. 6, Obama said that he'd also stimulate the economy by creating "green jobs," putting people to work refurbishing federal government buildings to make them more energy efficient.
Obama also may use his stimulus push to promote a smart grid, said Daniel Yergin, an energy historian and the chairman of Cambridge Energy Research Associates, a consulting firm. Such an upgrade of the nation's electricity grid could allow for a quick expansion of plug-in electric cars and for peak-hour pricing that encourages energy conservation, he said.
The big ticket for Obama, however, is likely to be huge spending on public works projects such as repairs of roads, ports, bridges and highways.
Most economists think that an Obama stimulus plan will cost about $500 billion to $700 billion over two years. That would make it the largest economic-stimulus and jobs program since Franklin D. Roosevelt took office on March 4, 1933, and launched the New Deal amid the Great Depression.
"At the time Roosevelt takes over, 9 million private savings accounts have been wiped out, with the collapse of thousands of banks. You have an unemployment rate of at least 25 percent, probably more. You have steel mills operating at most at 12 percent of capacity. There isn't simply anything of that sort (today)," said William Leuchtenburg, a presidential historian and prolific author.
That's not to say that today's America couldn't get there, he warned, and that's what's driving the push for a big stimulus plan.
"I think what's happening here is that in the back of everybody's head is 'This could get considerably worse.' I think there has been a scare factor here that connects to the 1930s," said Leuchtenburg, a retired professor from the University of North Carolina-Chapel Hill.
"After the Wall Street crash (of 1929), nobody foresaw what was to come. It was that sense, that Obama could be facing something worse than anything we've seen before, a kind of (financial) plague or black death. I don't think that's going to happen, but that's what gives the sense for a need of massive intervention."
As expensive as the Obama plan sounds, some analysts think that it might not be enough. The loose figures for his proposal fall in the range of 3 to 5 percent of the nation's gross domestic product.
"There is a general belief that we need 5-10 percent of GDP, minimally," said Edward Kerschner, chief investment strategist at Citi Global Wealth Management, an arm of the banking giant Citigroup, which itself is being bailed out by taxpayers. "You need a fiscal stimulus that has the greatest multiplier effect."
Infrastructure spending in the United States and other developed economies peaked in the 1970s, he said, and spurring it anew is vital for a global recovery. However, these nations are "speaking loudly but carrying a small stick," said Kerschner, noting that only China has announced large-scale public works spending so far to boost its economy.
Any economic stimulus pushed by Obama is unlikely, on its own, to get the nation out of its economic crisis. FDR's New Deal put millions of Americans back to work and created public works projects that built a platform for prosperity, but the U.S. economy didn't return to health until a decade after the New Deal began. It took war spending during the Second World War to revive fully.
The challenges that Obama faces today are also unique to our times.
"There's the sharp decline in asset values, there's the worldwide scope of this downturn and markets are much more interconnected than they ever have been in history," said Robert Reischauer, who was the director of the nonpartisan Congressional Budget Office from 1989 to 1995.
Infrastructure spending is needed, he said, but the risk is that projects will be approved that are less in the national interest than in the local interest of a lawmaker whose support is needed for the stimulus program.
"Here one has to wish the Obama administration well. The president-elect has been saying all the right things . . . but saying that and doing that are two very different things," said Reischauer, the president of the Urban Institute, a center-left policy research organization in the nation's capital.
Obama would be better served by providing more direct assistance to strapped state and local governments, he said.
"There's going to be a lot more demand for the kinds of services that state and local governments finance. And we're going to see state and local governments laying off teachers, policemen, trash men and welfare workers," Reischauer said.
That's what's haunting Dillon, and why people there are waiting anxiously for Obama.
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