Pinching Pennies Doesn't Have To Be So Painful

As President Barack Obama works to push his $825 billion dollar economic stimulus package through Congress, recent reports of massive layoffs have many pinching pennies to survive a wounded economy. Money coach Alvin Hall offers tips on how lessen the sting of a turbulent economy.

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MICHEL MARTIN, host:

And now we want to talk about money, or rather the economy. President Obama is on Capitol Hill today, trying to drum up support for his $825 billion stimulus package. In his weekly radio address, the president said his plan would jump start the nation's troubled economy.

(Soundbite of President Obama's Weekly Radio Address)

President BARACK OBAMA: This is not just a short-term program to boost employment. It's one that will invest in our most important priorities, like energy and education, health care, and a new infrastructure that are necessary to keep us strong and competitive in the 21st century.

MARTIN: But what are the details of the plan? What's the logic behind it? And what's the evidence to suggest it might work? We decided to ask our regular contributor on matters of personal finance and the economy, our money coach Alvin Hall, to help us sort it out. Welcome back, Alvin.

ALVIN HALL: I'm glad to be here.

MARTIN: So, what's included in this Obama stimulus package?

HALL: It includes money that will be allocated to several key areas in America. The first one, which he has talked about a long time, is infrastructure. That's 140 billion. And infrastructure also includes science. So, in this case, small businesses in parts of the U.S. will all of the sudden have access to broadband. Then there's education and training. It's the second component, which is 125 billion. This one is interesting to read because it's not only about updating schools, classrooms, and the way education is delivered, but he also talks about training programs for people who are unemployed, to help them be able to compete in the new world that they imagine in the 21st century.

MARTIN: Now, this week started with announcements of thousands of job cuts...

HALL: I know.

MARTIN: From companies across the country. And this is, of course, on top of the job cuts that we've been hearing about over the course of the last year and a half. I mean, 20,000 from heavy equipment manufacturer Caterpillar, 8,000 at Sprint, 7,000 from the Home Depot. What does this package do to create jobs now?

HALL: That's the question that everybody is asking. What will it do to put these people back to work before their unemployment benefits runs out? And that's not very clear in this bill, to be very honest with you. If Congress can act soon to get the infrastructure part of it in place and the training part of it in place, maybe some people would be able to be reeducated or retrained for new jobs. But it's not clear how that's going to help. The person who works for the auto industry or the person who's just been laid off at Sprint - it's not clear how it's going to get them back employed that quickly.

MARTIN: And of course, President Obama also has made environmental policy reform a priority. That includes creating so-called green jobs. Now you can see how investing in new technologies yeilds, again, long-term benefits.

HALL: Yes.

MARTIN: But is there a way in which it yields short-term benefits?

HALL: Unless you and I, Michel, are going to go out and start automatically putting insulation into everybody's houses, (laughing) I don't see this. That's one of the problems, I think, with the bill...

MARTIN: Well that's a thought. At least it would keep us busy, right?

HALL: Yes, it would keep us busy.

(Soundbite of laughter)

HALL: And you know, that's one of the things that people look at this bill and say, when will this affect my life? And I work in the financial markets, and I can see them bailing out all these banks, I can see the money coming into the banks. But let's look at me as a very simple example. I provide training services to these companies, and a lot of these companies now have just simply slashed the training programs. Will they go out as a result of the money coming in and hire people to train the new employees that they will hire, or to retrain the people that they rehire? It will be months before that occurs.

MARTIN: On the other hand, one of the reasons that Republicans push tax cuts is they believe that that has a more immediate stimulative effect, that it, kind of, puts people's - money in people's pockets, as it were, it puts money back in business's accounts and gives them the incentive to invest. There are tax cuts included in this plan as well, but there is a lot of balking about that.

HALL: Yes.

MARTIN: So, talk to me about that.

HALL: Well, the tax cuts are very interesting. The Republicans believe that if they give you money and they put it in your hands, the first thing you're going to do is go out and spend it. That's been the traditional way of thinking. But in this type of an economy we don't spend, we save, and we spend very carefully because of the uncertainty surrounding jobs. So, I think there's that old myth and that old philosophy that they're holding on to. Even with the Obama tax cuts, which would be $500 for individuals or $1,000 for a couple earning $200,000 or less a year, that's also not a lot of money. And people are not going to go out and buy, as they said before, flat-screens television. We're going to hold onto the money because it's uncertain. I think that the only way they're going to encourage people to go back out and spend is to give people greater job security. Now, I've said this again and again. I was watching...

MARTIN: But how can you do that?

HALL: I think you have to give the companies that are laying off all these people either access to greater credit, or something that will let them see their future incomes as being brighter. I'm not sure that's easy to achieve in this type of economy, where everybody is cutting back. I was watching George Stephanopoulos this weekend, and I think Carly Fiorina was on there. And she was talking about making credit available to people as a way of stimulating the economy because if people had more credit, they would spend. And I wanted to almost jump through that screen and just yell at her. How can people spend credit when they don't have jobs? How can you tap a credit line when you don't have a job? It seems as if there's too much theoretical ideas behind this regarding credit and banking, and it comes down to a bottom-line thing.

MARTIN: Carly Fiorina, of course, was the former chairman of Hewlett Packard who is a top McCain supporter.

HALL: Yes.

MARTIN: So, obviously, you're talking about, sort of, a different vision of economic theory there. If you're just joining us, you're listening to Tell Me More from NPR News. I'm speaking with our regular contributor on matters of personal finance and the economy, Alvin Hall. We're talking about President Obama's stimulus package.

And talking about access to credit, there's been a lot of criticism about the steps that the former President Bush took to unlock the credit markets. The - billions of dollars have already been distributed to the banks and the investment banks in order to try to unlock the, sort of, credit which had essentially been frozen. But now the complaint is that that money was distributed, but we aren't really getting any benefit for it. What - in the sense that the lending has not really increased...

HALL: It's decreased, actually.

MARTIN: It's actually decreased, and that many of the executives in place at these companies, you know, rewarded themselves in bonuses and in their paychecks, and so the question is what's President Obama going to do assure that there's actually going to be some benefit from additional funds?

HALL: I think this idea of creating a Web site where there is complete transparency about what happens to the money is a very good thing. But I think he needs to work hard at changing the mindset, especially in the financial markets, where people are used to these multi, multi-million dollar salaries. They're not used to investing in their businesses. Instead of investing in their businesses, what they do is to pay themselves these huge salaries and then use credit lines to keep the businesses afloat. That needs to change. They need to keep some cash behind the business instead of depending upon a credit line.

MARTIN: But why wasn't that a condition of the money, that - restrictions were placed on the auto industry. In exchange for getting support from the financial government they were given a very strict set of tasks.

HALL: Yes.

MARTIN: It seems to me that, on the financial side, that they privatized the public good.

HALL: Yes.

MARTIN: That they took public money and then privatized it. So, why was that tolerated, and what is President Obama going to do differently?

HALL: I think it was tolerated because Hank Paulson, the then secretary of the treasury, trusted the Wall Street minds to do the right thing. I think that he had been embedded in that culture so long that he thought, I could give the money to these guys, and they'll do what's right with the money. I think he forgot that the culture of greed and self interest on Wall Street does not leave overnight. It is still there. I think that President Obama needs to put more strings on the money, to say to these - and banks, and to say to this financial institutions, if you're going to take this money from the government, show what you do with it, and show how it's going to benefit that person who's working on that desk at your firm, or the person who's in human resources who is about to be laid off.

MARTIN: And of course, we should say that according to some of the materials provided by the Obama team, that part of their planning includes areas such as health-care finance, energy-saving programs, public works projects...

HALL: Yes.

MARTIN: School construction and renovation and expanding, jobless aid, and food stamps. And so, that is, kind of, direct aid that goes directly to the public sector. Finally, you mentioned the treasury secretary, the Senate yesterday confirmed Timothy Geithner as the new treasury secretary, despite the fact that there was some concern...

HALL: Yes.

MARTIN: About the way he handled some personal tax issues. So, what's his first order of business?

HALL: His first order of business is to go to all of his friends and people on Wall Street to say to them, this is a new day. We need for this stimulus package to work, and we need all of you to get on board. And one of the things you need to do first is to cut your compensation. This masters-of-the-universe-type salaries that the people used to earn, it needs to go away and be reduced to some understandable level. Why should an executive be worth 400 or more times the average salary earned by a person who's actually producing the goods and services that America uses?

MARTIN: Alvin Hall is our regular contributor on matters of personal finance and the economy, and he joined us from our bureau in New York. Alvin, thank you.

HALL: Thank you.

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