THE UNITED States could linger in recession for years, with double-digit unemployment and the loss of "a generation of potential and promise" unless the federal government takes a commanding role in stimulating the economy, President-elect Barack Obama warned yesterday, reports Denis Stauntonin Washington.
In a major address on economic policy at Virginia's George Mason University, Mr Obama said that if government is too timid in its actions, the current economic crisis could worsen.
"It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe," he said.
"Only government can break the vicious cycles that are crippling our economy - where a lack of spending leads to lost jobs, which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit."
Mr Obama wants Congress to approve a massive public spending programme - which could cost more than $1 trillion - within weeks of his inauguration on January 20th. House speaker Nancy Pelosi said yesterday that a Bill would be ready for the new president to sign by the middle of February.
With unemployment expected to reach 9 per cent this year, bank lending dwindling to a trickle and manufacturing output and retail sales at 20-year lows, most economists agree that the US economy needs a government-sponsored kick-start.
The federal government deficit for this year is already projected at $1.2 trillion and Mr Obama acknowledged that taxpayers were uneasy about the hundreds of billions of dollars that have been spent on bailing out Wall Street. "I understand that some might be sceptical of this plan. Our government has already spent a good deal of money, but we haven't yet seen that translate into more jobs or higher incomes or renewed confidence in our economy. That's why the American Recovery and Reinvestment Plan won't just throw money at our problems - we'll invest in what works.
"Instead of politicians doling out money behind a veil of secrecy, decisions about where we invest will be made transparently, and informed by independent experts wherever possible," he said.
Mr Obama said that, while struggling financial institutions need government help to ensure that credit flows through the economy, the government must play a more powerful role in preventing a repeat of the reckless lending practices that led to the current crisis.
"It means reforming a weak and outdated regulatory system so that we can better withstand financial shocks and better protect consumers, investors and businesses from the reckless greed and risk-taking that must never endanger our prosperity again," he said.
"No longer can we allow Wall Street wrongdoers to slip through regulatory cracks. No longer can we allow special interests to put their thumbs on the economic scales. No longer can we allow the unscrupulous lending and borrowing that leads only to destructive cycles of bubble and bust."
The Chicago Tribune reported yesterday that the president-elect has chosen Cass Sunstein, a leading constitutional expert and Harvard law professor, to head the Office of Information and Regulatory Affairs, with a sweeping agenda to overhaul government regulation. A long-standing friend and adviser to Mr Obama, Dr Sunstein last year married Irish-born Samantha Power, who has advised the president-elect on foreign policy. The couple met on Mr Obama's election campaign.
As Mr Obama sought to focus attention on his economic recovery plan yesterday, the drama surrounding Illinois governor Rod Blagojevich rolled onwards yesterday as a state legislative committee recommended that the governor be impeached.
Mr Blagojevich is under investigation for allegedly trying to trade Mr Obama's vacant Senate seat for personal and political favours.
"The citizens of this state must have confidence that their governor will faithfully serve the people and put their interests before his own. It is with profound regret that the committee finds that our current governor has not done so," the bipartisan committee said in a 69-page report yesterday.
"For all the reasons stated in this report and the evidence contained in the record before the committee, the special investigative committee for the Illinois House of Representatives, 95th General Assembly, finds that the totality of the evidence warrants the impeachment of the governor for cause."
The Senate yesterday held its first confirmation hearings for Mr Obama's cabinet choices, considering the nomination of former Senate majority leader Tom Daschle as health and human services secretary.
The hearings will continue throughout next week, with Hillary Clinton, the nominee for secretary of state, facing the foreign relations committee on Tuesday.