Page last updated at 00:20 GMT, Friday, 9 January 2009

Obama signals end of Reagan era

By Richard Lister
BBC News, Washington

Ronald Reagan may be turning in his grave. It was he who famously declared in his 1981 inaugural address "government is not the solution to our problem; government is the problem".

Barack Obama
Mr Obama faces tough fight to get his package through Congress

He slashed spending, cut taxes and reduced regulation.

His approach influenced a generation of Republicans and a fair number of Democrats.

Remember Bill Clinton declaring in his 1996 State of the Union address that "the era of big government is over"?

Well, the next President, Barack Obama believes that "only government can break the vicious cycles that are crippling our economy".

He proposes a massive increase in spending, one-off tax cuts, yes - but higher taxes on the rich (eventually), and new regulation to pull America out of its economic crisis.

The Reagan era is finally, comprehensively, over.


But he does not get to trample over one of conservatism's greatest icons without at least a bit of a fight.

Most in Congress seem to accept the need for a stimulus bill to jolt the American economy back into life.

But there is a debate underway about how much should be spent and where the money should come from.

Senate Minority Leader Mitch McConnell has released a series of cautionary statements, one urging: "Protect the Taxpayer Against the Rush to Spend Their Money", another warning that the $1.2 trillion deficit "is a stunning and sobering reminder that Congress must strengthen its efforts to be good stewards of the taxpayers' money".

Republicans - and some fiscally conservative Democrats - have suggested that $500bn may be all that is required.

Immediate tax cuts of $1,000 per family
Increased benefits and health care for the unemployed
Computerising all health care records in five years
Doubling investment in alternative energy and re-shaping energy grid
Aid to states to help maintain vital services
They are not going to sign the biggest Congressional cheque ever written without careful scrutiny and debate about the details, in particular how much of the investment is in the form of loans, and how much in grants.

That apocalyptical deficit cannot be ignored either.

It is already more than double the size of last year's deficit - itself a record-breaker.

Even without the prospect of a gargantuan new spending bill, there are serious questions about how it can be brought back into line when each year the government is having to spend more on healthcare and social security for its ageing population - not to mention the rising cost of unemployment.

Mr Obama and his team know all those arguments, of course, but their bottom-line is that the one thing worse than spending the money is not spending the money.

Without investment to create jobs and demand, the recession "could linger for years".

Action needed

Ironically, this economic catastrophe has also given him the opportunity to implement many of the pledges on which he campaigned.

Funding long-overdue healthcare reforms will be much easier if he can show that they will also be good for the economy.

The same goes for energy policy.

The President-elect is arguing that the time for partisan wrangling over the issue has passed; what is needed now is decisive action.

Normally, Congress resists such railroading, but right now it is Mr Obama who has the public's trust and support according to the opinion polls.

A Politico/Allstate poll at the end of last year suggested 79% of Americans support his stimulus plan and he has a 63% approval rating.

Even the victorious Congressional Democrats get only a 41% approval rating in that poll and the Republicans just 24%.

If ever there was a favourable wind behind Barack Obama, this is the time, and his speech in Washington DC was designed to keep building the public and political momentum behind his economic policies.

He has spoken a lot about the need to ensure there is only "one President at a time" in this transition period.

But when it comes to the economy he is making sure everyone knows that person is not George Bush, and it is certainly not Ronald Reagan.

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