Obama's New Deal

This post first appeared on Minyanville.

Ideology, it appears, has taken a backseat to expediency.

72 hours ago, President-Elect Barack Obama announced plans to reinvigorate the American economy with the biggest public-works project since the 1950s. Criticism of what's being called the “New New Deal” has been scant, as even ardent capitalists seem willing to wax socialist if it gets the country back on track.

After all, with unemployment on the rise, the financial system crumbling around us, General Motors (GM), Chrysler and Ford (F) facing extinction and a host of other economic maladies plaguing the system, anything has to be better than the status quo.

Details of Obama’s intentions remain sketchy at best, but fixing highways and bridges, updating the rail system, new telecommunications infrastructure, modernizing health care and improving the public school system are atop the President-Elect’s holiday wish list.

Commodity Prices soared on the heels of the announcement, as investors poured money into US Steel (X), Freeport McMoRan (FCX) and others who pull stuff out of the ground that hurts when it falls on your foot, as Dennis Gartmen is now famous for saying. With all that new construction, steel, copper and the like will once again be in high demand.

If, of course, the plan even works.

Detractors cite impracticality as one of the primary flaws of the massive spending program. Many wonder if it’s realistic to expect the government to spend hundreds of billions of dollars efficiently, getting money and jobs to where they’re needed most. The $700 bailout plan, now half spent, hasn’t exactly been a model of prudent use of taxpayer funds.

Others wishing to rain on Obama’s populist parade question the economy’s ability to absorb millions of jobseekers, few of which have been trained to lay new railroad, pour cement or install fiber optic cables. America’s labor pool has become increasingly focused on service-sector jobs, yet the new public works focus on traditional blue-collar employment. Structuring debt securities doesn’t exactly translate into structural engineering.

Finally, there’s that whole pesky issue of the national debt. Obama has repeatedly vowed to ignore near-term budget deficits in favor of getting the economy back on track. But at some point, the printing presses will seize up, and Washington’s debt experiment will run aground.

The world seems able, although not altogether thrilled, to absorb an American budget deficit now running at around $1 trillion per year. Can it handle $2 trillion? What about $3 trillion? Or $5 trillion?

At some point, trillions do in fact start to matter. If holders of US Treasuries start to get skittish and demand a higher return on their not-so-safe-haven investment, government debt will become that much more expensive, deepening the deficit and resulting in the mother of all feedback loops.

No one’s quite sure what will happen if we really do bankrupt the country trying to save it - some mildly terrifying cocktail of deflation, a dollar collapse and hyperinflation all rolled up in one. It’s an outcome no one really wants to provision for.

To be sure, it’s hard to find many who hope Obama fails, preferring instead to look back at 2009 and chuckle, remembering when the country went all in and made that straight flush on the river.