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22 June 2024

The stimulus may not stem the rot

By Martin Baker

And so to San Francisco, just ahead of a rather unpleasant storm that has swept across much of the eastern and northern United States. Much to the irritation of newly-elected President Barack Obama the frost that preceded the snow kept his children out of their new school in Washington DC. Transportation ground to a halt in the US capital, and schools closed as a consequence.

A little bit of the grittiness that comes with Obama's native Chicago was needed, he claimed.

Obama wasn't making a political point, but the obviously poor quality of the infrastructure in the political hub of the US was amply demonstrated. Curiously, as a travelling Brit this embarrassing failure to cope made me feel very much at home. We've become accustomed to some of the worst excuses imaginable for the collapse of British transportation systems because of a gust of wind, a fall of leaves, etc – "the wrong type of snow" falling on railway tracks has entered the lexicon of British self-criticism (It's the flip side of all that intensely annoying braying you too often see in restaurants – put a dozen Brits together over dinner and by the time pudding arrives half of them have re-invented the "glory" days of empire).

And the trip to San Francisco underlined the need for Obama's stimulus package, as well as sparking the first round of real political debate in the new president's term. Already the absurd feel-good factor of the presidential honeymoon – so evident in New York just a week ago – is well and truly over. The climate's suddenly cold, both meteorologically and politically.

So, as I look out at the sun-kissed glory of the Golden Gate Bridge (actually a dull, housing-brick red) to my left and the Oakland Bay Bridge to my right, with the iconic trapezoid skyscraper of the Hopkins building immediately below me, I see a beautiful, clear day in the Bay Area, but a cloudy and indistinct future. Nevertheless, a number of factors are evident, despite the political and economic murk.

The first concerns the package itself – is it needed, will it work? The second speaks to the nature of American politics, the artfulness of the new president and the kind of opposition he faces. The third is intimately related to the second – it concerns the nature of the American psyche, the popular obsession with feeling good, and the way that the people's voices, as expressed through the medium of modern technology, do affect the way that politicians and the media react.

To my mind, there's no doubt whatever that the package is needed. At the risk of stating the blindingly obvious, on a macro-economic level, the world needs the US economy to be strong, and for US consumers to get back to consuming. But the needs Obama is addressing are much more short-term than that.

US infrastructure, a priority area for the package, is crumbling. American bridges and roads are in an appalling state. A bridge fell into a river in the mid-West a couple of years ago, and the turnpikes and bridges in the New York and San Francisco area hardly inspire confidence. In the private sector, the need for renewal and re-investment is similarly apparent. I was initially booked into one of the world's best-known hotels in the heart of San Francisco, but the threadbare carpeting, shoddy, ancient fittings and finishes in the rooms were, to use a colonial phrase, Third World. I write this from the sumptuously appointed Mandarin Oriental – a "Third World" organisation that is one of the world leaders in the world's hotel industry.

The next leg of my trip will, as previously mentioned, take me to Hong Kong. Thank goodness I'll be flying with an Asian airline. The trip from New York to San Francisco was with a major American carrier. I was travelling, with a bit of luck and a few air mile points, in first class. Frankly, I'd have been better off in steerage (if you could get a bit of proper leg room) with an Asian carrier. The lounge was shoddy, the seats were uncomfortable, and while they were at the front of the plane, the entire passenger list came by my seat – a bit of a struggle if you haven't been given time to stow baggage, etc. The story is the same, time and again. The US is falling apart in terms of infrastructure, service and customer care. Asia and the "Third World" lead the way.

That said, the demographics of American society militate against comfortable travel on large planes. The really wealthy – and there are many of those in the US – travel in their own jets, not in first class on a public carrier, so there's less of a market.

Anyway, that package. Not a single Republican voted for it – so the bi-partisan era of the new presidency lasted all of a week. Their complaint was that the money is all about cosy jobs for the public sector. The Republicans are right to be concerned, but for the wrong reasons. The infrastructure needs replacing, but throwing public money at it isn't the right way. A private-public partnership or tender to the private sector would be better, I believe.

But the larger concern, not within the scope of Republican objections, is that the money will provide jobs and better infrastructure, but not create wealth or stimulate long-term demand. As predicted here earlier, we're in danger in the West of throwing cash at the wrong bits of the economy – of doing what the Japanese did, funding public projects and creating short-term buoyancy with no long-term sustainable growth.

The Japanese had a stagnant or recessionary economy from 1990 to 2004, and things aren't looking great there right now either. A key reason for that, I suggest, is the fact that the government spent those years throwing money into a part of the economy that would not reward the expenditure with growth. You can keep a fire going for a while by pouring oil into the hearth and setting it alight. But there's no real conflagration without the fuel of creating business opportunities. Public expenditure, for its own sake just doesn't work – but Obama has been clever enough to outsmart the parochial Republicans to get it through as part of the package.

If the Obama administration understands that this is just part of a package, and not enough on its own to stimulate growth, it may yet work.

As for the third, and arguably most important leg of this discussion – the American psyche and the way it affects policy in the new media age, I'll save that for my next report. I'm sure the perspective will be just that bit sharper from the capital of hype and media monstrosity – Tinsel Town, otherwise known as Los Angeles.

Martin Baker is a journalist, author and commentator on international business affairs