Inheriting the financial fallout

People celebrate the victory of U.S. President-elect Barack Obama near the White House on November 5, 2008 in Washington, D.C.


Bill Radke: President-elect Barack Obama will inherit the fallout from a financial crisis and recession. Joining us now is Nariman Behravesh, chief economist for IHS Global Insight consultants. Nariman, President Obama will also probably inherit a fresh economic stimulus package from this Congress. What do you hope to see in that?

Nariman Behravesh: Well, the three elements I think that are important, the first is some kind of infrastructure spending, that tends to have the biggest bang per buck, I think that's a very important element of such a stimulus. Second is revenue sharing, or grants and aid to state and local governments. And finally, I think they're going to consider, and I think this is fine, an increase in unemployment insurance. All those elements are critical here.

Radke: And anything you're fearing?

Behravesh: I think any further tax rebates are not a good idea in the sense that people tend to save tax rebates.

Radke: Obama will also inherit this $700 billion bailout package for financial institutions. But that package has a lot of wiggle room as to how it can be spent. How would you advise the new president to spend it?

Behravesh: I think the missing link right now is nothing can be done for homeowners, so some of the money should be allocated to a program that tries to minimize that kind of damage, and in the end puts some kind of a floor on home prices.

Radke: And the auto industry?

Behravesh: Well, I'm less sympathetic here in the sense that certainly the problems in the auto industry have been long and coming. This is a long issue, it's been in the making for a long, long time. It doesn't really have that much to do with what's going on in the economy currently, although it's certainly being exacerbated by it. So I think the risk here is that every industry that runs into trouble because of their own mistakes then comes to the government and says oh, help us out. We raise a big risk here if we bailout the auto industry of what's referred to as moral hazard -- namely that it encourages a profligate behavior.

Radke: Economist Nariman Behravesh is author of the new book "Spin-free Economics." Nariman, thank you.

Behravesh: My pleasure, Bill.


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