A vow to jolt the economy

Obama puts team in place but warns of cuts and revised priorities

President-elect Barack Obama with Timothy Geithner, his Treasury secretary nominee, after a news conference in Chicago. (Charles Dharapak/ Associated Press)

WASHINGTON - President-elect Barack Obama yesterday introduced his top economic aides with a promise to use a massive stimulus program to "jolt" back on track an economy that could lose millions of jobs, while also warning that a looming huge budget deficit will require cutting programs and reconsidering priorities.

Sounding as though he were already assuming the reins of power 57 days from his inauguration, Obama said he had instructed his new economic team to craft a plan to create or save 2.5 million jobs in his first two years, and he urged the new Congress, which convenes Jan. 6, to have the legislation ready for him to sign as soon as he is sworn in as president two weeks later. "We do not have a minute to waste," he said.

He declined to say how much the stimulus package might cost, but declared that the federal government must act "swiftly and boldly" to resolve an "economic crisis of historic proportions." There are estimates that the package could be $700 billion over two years - compared with the $175 billion per year he proposed during the campaign - or even more.

Obama's comments provided the clearest sign yet of how the financial crisis is forcing him to rapidly revise his campaign proposals before assuming the presidency. He used the Chicago news conference to warn Americans that the coming year will be painful and that the economy "is likely to get worse before it gets better." After saying how vital the auto industry is to the nation's economic well-being, he scolded auto executives who last week asked Congress for a $25 billion bailout without providing enough specifics about how they would change the way they do business. "We can't just write a blank check to the auto industry," Obama said.

Obama's choices for the top economic jobs signaled that he was switching from President Bush's reliance on former Wall Street executives such as Treasury Secretary Henry Paulson - whose reputations have suffered during the financial meltdown - to seeking the counsel of longtime government officials and academics who have stressed the importance of helping Main Street.

As expected, Obama picked New York Federal Reserve Bank resident Timothy Geithner as Treasury secretary; former Harvard president and former Treasury secretary Lawrence Summers as head of the president's National Economic Council, which coordinates policy among federal agencies; and Christina Romer, an economist at the University of California at Berkeley, as chairwoman of the Council of Economic Advisers, which plays the role of in-house think tank.

"I've sought leaders who could offer both sound judgment and fresh thinking, both a depth of experience and a wealth of bold, new ideas, and most of all who share my fundamental belief that we cannot have a thriving Wall Street without a thriving Main Street, that in this country we rise or fall as one nation, as one people," Obama said.

He also picked two women with strong ties to Massachusetts lawmakers to lead the White House domestic policy council, which will play a key role in healthcare issues as well as the economic recovery. The director will be Melody Barnes, a former aide to Senator Edward M. Kennedy, and the deputy director will be Heather Higginbottom, a former aide to Senator John F. Kerry.

Obama's economic team received bipartisan praise. Senate Banking Committee chairman Christopher Dodd, a Connecticut Democrat, said the team would move "quickly and responsibly to address our nation's economic crisis," while Senator Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee, said Obama "has shown strong and early leadership by his choices."

House Financial Services Committee chairman Barney Frank, a Newton Democrat, said the new team would "push for prompt and decisive action to reduce mortgage foreclosures," require banks receiving federal aid to lend more money to consumers and businesses, and win passage of a stimulus package shortly after Obama becomes president.

One major issue left unclear yesterday was whether Obama would follow through on his campaign pledge to raise taxes on those earning more than $250,000, which he has said would help pay for tax cuts for 95 percent of working Americans. Obama has asked his economic team to suggest whether he should immediately repeal the Bush tax cuts for the wealthiest Americans, or let them lapse automatically as scheduled at the end of 2010. If Obama took immediate action to raise the taxes on the wealthiest, he would gain $72 billion in revenue. But that would not come close to paying for his tax cuts, which would cost $1.2 trillion over 10 years, according to the nonpartisan Tax Policy Center.

At the same time, it is unclear how much money Obama could save by scouring the budget "line by line, and make meaningful cuts and sacrifices," as he promised yesterday. If he excludes defense and entitlement programs such as Social Security from such cuts, he would have only about 20 percent of the budget from which to cut programs, many of which have powerful patrons in Congress or are supported by Obama himself. He is expected to say more about budget cuts at a press conference today, when he is expected to name Peter Orszag as director of the White House Office of Management and Budget. Orszag now heads the Congressional Budget Office.

Roberton Williams, the Tax Policy Center's principal research associate, said that Obama seems likely to trade a much deeper deficit for the hope that a stimulus plan will boost the economy in the long term. "In the very short run, all fiscal discipline is off the table," he said.

Obama declined to say how much his economic stimulus plan might cost, but some Democratic leaders are calling for a program as large as $700 billion, possibly spread over two years, the same amount allocated earlier this year for the financial bailout package.

Whatever the size of the program, it would be added to a 2009 budget deficit expected to top $1 trillion, more than twice the previous record. The size of the deficit has increased because of the cost of the bailout as well as an array of tax measures and the expected loss of at least $100 billion in tax revenues.

"American taxpayers are understandably concerned [that] if we already have a big deficit and now we're adding an additional stimulus, how are we going to pay for all that?" Obama said yesterday. "The right answer is that we have to first focus on getting the economy back on track."

While economists on the left and the right have generally agreed on the need for an economic stimulus, there is widespread disagreement about what shape such a program should take. Earlier this year, Congress approved a stimulus plan that resulted in many Americans receiving a $600 tax rebate check. But critics said the program didn't stimulate the economy because much of the money was spent on foreign-manufactured goods, and the economy collapsed several months after the checks were sent out.

As a result, Obama's economic advisers have urged him to embrace a stimulus plan that focuses mostly on creating jobs such as those needed to promote alternative energy and to rebuild roads, bridges, and other infrastructure. Obama indicated he was leaning in that direction yesterday, saying, "We've got to make sure that the investments are made to sustain economic growth over the long term."

While Obama was careful to say that he will honor the commitments made by the outgoing Bush administration and to not directly criticize its response to the economic crisis, one of his top advisers was not as gentle.

"Economic dithering, sitting, and waiting for crises to land on you and not doing anything to prevent them" will end on Inauguration Day, Obama economic adviser Austan Goolsbee said on MSNBC yesterday. "We've tried not doing stimulus. We've tried not having a housing program. We've tried not giving tax relief to ordinary Americans. And if you look out on the window, that's not working out so well. So that era is going to end when Barack Obama becomes president."

Michael Kranish can be reached at kranish@globe.com.