Three pieces of economic and energy intelligence you likely won’t find elsewhere

Five Ideas for Economic Stimulus

Susan Woodward and Robert Hall offer President-Elect Barack Obama some advice on how best to stimulate the economy. Susan Woodward is a financial economist who has served as the chief economist of the Department of Housing and Urban Development and as chief economist of the Securities and Exchange Commission. Robert Hall is a macroeconomist with a doctorate from MIT.

Maybe they are smart, maybe not. You decide.

Their five points are simple in the stating, huge in the doing.
• Further expansion by the Fed (more bailouts and stimulus money)
• Income tax cuts with rebates, as earlier this year
• Tax cuts that reduce the prices of consumer goods temporarily
• Tax cuts that reduce the cost of labor to businesses
• Increase in purchases of goods and services by state and local governments

Woodward and Hall issue a note that might offer insight into the prospects for Interstate 49 funding: “State and local construction spending is currently $300 billion per year. The Obama team is hard at work trying to find out how much of a backlog is “shovel-ready” in the President-elect’s neat phrase. We are not aware of any easy source for this information. Timing may be a problem, as it was in the old days when these kinds of projects were called public works. Complicated projects take time to ramp up to high spending and employment levels. Some interstate repairs can be executed in a year, as was the case in rebuilding the collapsed I-35 bridge in Minneapolis last year and in re-opening earthquake-damaged freeways in Los Angeles in 1994, while it took many years to reopen all the damaged roads in San Francisco after the 1989 earthquake.”

Link here to their report.

Economic Optimism

Richmond Fed Chief Jeff Lacker is optimistic about economic recovery in 2009. He notes in a recent Fed report: “Looking ahead, uncertainty about the outlook is greater than usual, though probably not greater than is typical for this phase of a business slowdown. It strikes me as reasonable to expect the U.S. economy to regain positive momentum sometime in 2009, for several reasons. First, monetary policy is now quite stimulative. Second, the energy and commodity price shocks that dampened economic activity earlier this year have subsided already or are in the process of doing so. And as I’ve mentioned, the drag from housing seems likely to lessen in the next year, and in fact, I would be surprised if we don’t see a bottom in housing construction sometime in 2009. This is the third straight year, however, that I’ve been expecting a bottom in the housing market in the middle of next year, so my outlook is tempered by more than the usual amount of humility.”

Kiplinger Killjoy

And Jim Ostroff with The Kiplinger Report urges us to not get accustomed to low gas and diesel prices. He makes three interesting points in his “Energy Prices Not Headed for a Collapse.”

• “This market slide has overshot the mark, just as the upward swing did earlier this year. As we said last spring, supply/demand fundamentals didn’t support oil prices of $150 a barrel or more. Now they don’t warrant prices of $50 or less.”

• “Come 2010, growing oil consumption will again push prices to $100 a barrel, an average that will match the sting of this year’s. What isn’t likely to be matched: The extreme volatility of 2008, when speculative buying, combined with a wafer-thin cushion of supply & demand, pushed prices to the stratosphere and economic recession let them fall rapidly earthward as the hot money fled.”

• “Global demand will climb to 88 million barrels a day, within a whisker of the maximum available in 2010. In contrast, demand today is about 84.5 million barrels. Shortages of diesel fuel refining capacity will reappear. Planned new refineries fell victim to the recession. That will push average diesel prices toward the $4 mark. As for gasoline prices, they’ll climb by a buck from 2009. And we expect heating oil to run about $3.75 a gallon.”