Obama’s Kobayashi Maru

In the opening scene of Star Trek II: The Wrath of Khan (arguably the best of the series to date), Starfleet cadet Saavik, played by pre-Jenny Craig Kirstie Alley, is put through a "no-win" training simulation designed to test her character under extreme conditions. The Kobayashi Maru is a disabled Federation freighter located inside the Klingon Neutral Zone rapidly losing life support. The “captain” is faced with a difficult choice: enter the Neutral Zone and risk confrontation with the Klingons, or do nothing and allow the crew of the Kobayashi Maru to perish. (Note to Star Trek purists: this is my recollection from memory, and is not meant to represent canon in any way. All is well. Please step away from your computer, and proceed back down into your parent’s basement.)

Obama is faced with his own economic Kobayashi Maru – seek to stimulate the economy through government spending and public works programs that may have the opposite effect of their intended objective, or do nothing and let the market self correct but not before a period of profound pain and misery.

He’ll need to tread lightly here. This particular downturn in the economy is tricky, as the sector that has traditionally led us out of recession (construction) is one of the factors responsible for the economy’s collapse. In past recessions, the government used monetary policy to stimulate investment in new construction, leading to new job growth, leading to increased consumer spending thereby reinvigorating the Economic Circle of Life.

But interest rates are already at all-time lows. And as we’ve seen with the TARP program, the government can’t force banks to lend, either among themselves or to the public. Of greater concern is current inventory – how do you go about building new buildings and homes when there are already too many of them available on the market?

Overall, I’m encouraged with some early signals the Obama economic team has sounded. I don’t think they hold out any rosy scenarios for a quick turnaround – recovery will come, but it will be slow. I think the plan for investment in public infrastructure improvements – bridges, highways, etc – is a smart one. Not only because I think these improvements are desperately needed, but also because I think the Obama team is addressing a downturn in construction yet to come. Residential construction has already been felt and absorbed into the economy - it’s the downturn in commercial construction that has yet to be realized, and where Obama appears to be setting his sights.

I would prefer the feds look to raise funds to pay for this public investment through either spending cuts in current programs or reducing capital gains and other taxes on investment. We'll see. On taxation, Obama appears to be ratcheting down his campaign's class warfare rhetoric - this is good, but he can and should do more.

For our sake, let’s hope Obama turns out to be a fan of Captain Kirk.