Essentials of the Economic Recovery
The recession has officially ended, bankers on Wall Street are once again enjoying huge bonuses, and the stock market has recovered some of its losses. But the economy on Main Street is still grim and millions of families continue to struggle. Nearly one in five people is either unemployed or underemployed.(1) One in eight people is on food stamps.(2) One in nine families cannot make the minimum payment on their credit cards.(3) The American Recovery and Re-Investment Act of 2009 (the “Stimulus Bill”) passed by Congress in early 2009 has kept an estimated 6.2 million people out of poverty (4) and created 1.0 to 2.1 million jobs.(5) But much more needs to be done.
Jobs: The nation’s primary focus must be job creation to put millions of un- and underemployed people back to work. Some 10.6 million jobs are needed to restore the pre-recession unemployment rate.(6) But there is consensus among experts that unemployment will fall only slightly during 2010. Job creation on the scale we need will not happen without new policies and programs including:
• Public investments in infrastructure such as roads, railroads, bridges, and schools, and in green jobs like weatherization of residences.
• A public jobs program to hire people directly.
• Additional money for state governments and social safety programs (see below).
State budgets: Nearly every state is in crisis due to huge budget shortfalls. In fiscal year 2011, states face a combined budget gap that will total an estimated $180 billion.(7) Their only options are cutting services and laying-off people, or raising taxes. These are especially bad choices during an economic downturn.
Safety Net: Millions of people are living in poverty, short of food, and without health insurance. Social supports such as unemployment insurance, health insurance subsidies (COBRA) that allow laid-off workers to purchase health insurance through their former employer, and food stamps enable the unemployed to maintain a life of dignity and also inject money into local communities and businesses.
• The federal government must expand financial assistance to states so they can balance their budgets, as required by law, without additional layoffs and cuts.
• Congress must fully fund safety net programs to support those hurt by the economic crisis. Unemployment insurance and subsidies for COBRA health insurance coverage should be extended immediately through the end of 2010.
Deficit Spending: Many pundits and politicians portray the current federal budget deficit as a looming catastrophe. But in a downturn like the one we are experiencing, running a large, federal government deficit is the only way to hasten the return to more normal conditions.(8) To strengthen the economy and put people back to work, the government must continue to run a large deficit. The time to worry about and reduce the deficit is after the crisis is behind us. Right now, the best thing we can do for our children is run a large deficit to end the crisis.(9)
• Congress must pass a budget with a large deficit that creates jobs, fills gaps in state budgets, and funds safety net services.
Housing: One in seven mortgages is either in default or foreclosure,(10) and nearly half of all mortgage holders are projected to be “under water” in 2011, owing more than the value of their home.(11) The Obama Administration’s $75 billion Making Home Affordable Program that encourages banks to modify loans and keep people in their homes has failed and the Administration is considering other options.(12)
• A new mortgage modification program must require banks and borrowers to work together to fairly and realistically restructure loans, primarily by lowering principal balances.(13)
Regulation of the Banking Industry: Banking deregulation, excessive risk taking by banks, and fraud were major factors behind the financial crisis. To date, little has been done to address these issues and the banks are strenuously opposing all efforts in this direction.(14) It is imperative that Congress and the Administration take action.
• Banks that are too big to fail are too big to exist; they must be broken up.(15)
• The firewall between commercial and investment banking, established after the Great Depression but removed in 1999,(16) must be reestablished.
• Derivatives, those very risky investments that super-investor Warren Buffet calls “financial weapons of mass destruction,”(17) must be regulated.
• Consumer protections in mortgage, credit card, and other types of lending must be strengthened by establishing a Consumer Financial Protection Agency.
Restructure the U.S. and global Economy: Even before the current crisis hit, billions of people in the U.S. and around the world faced very difficult economic circumstances. Income inequality was growing: the rich were getting richer and everyone else got what was left over.(18) Corporate power in the market place and the political arena was rising, crowding out the voice of the people.(19) Trade and investment agreements advantaged corporations over workers and the environment.
Policies enacted to correct the abuses that created the current crisis will also begin to move the country in the direction it needs to go. But other changes are also needed.
• The North American Free Trade Agreement and other similar trade and investment agreements must be renegotiated.(20)
• Low-wage jobs must be improved by making the minimum wage a living wage.(21)
• Congress must strengthen workers’ right to form a union by passing the Employee Free Choice Act.(22)
• Congress must enact comprehensive immigration reform with a path to legalization, allowing millions of contributing members of society to come out of the shadows and share their gifts without fear.(23)
• The current system for financing political campaigns which allows large donors to influence outcomes must be fundamentally changed, beginning with new legislation to counter the recent Supreme Court ruling that allows corporations and unions to make unlimited expenditures in support of candidates right up until elections.
• Reform tax law so businesses pay their fair share, for example, by closing loopholes that allow the use of tax havens and offshore tax evasion.(24) Allow the 2001 and 2003 Bush tax cuts that favored the wealthy to end, as originally legislated, in December 2010.
For more information on the importance of deficit spending to create jobs, see The Federal Government Deficit: An Essential Tool for Putting People Back to Work and Ending the Economic Downturn
For a discussion of the deficit and our children and grandchildren, see For the Sake of Our Children, the Federal Government Must Run a Deficit at this Time
(1) Bureau of Labor Statistics, U.S. Department of Labor. 2010. “Employment Situation – January 2010.” February. http://www.bls.gov/news.release/pdf/empsit.pdf
(2) DeParle, Jason and Robert Gebeloff. 2009. “Food Stamp Use Soars Across U.S., and Stigma Fades.” New York Times. November 29, A1.
(3) Lagorio, Juan. 2009. “U.S. credit card defaults up, signal consumer stress.” Reuters, Sept 15. http://www.reuters.com/article/idUSTRE58E6LH20090915
(4) Pavetti , LaDonna. 2009. Testimony on the Impact of the Recession and the Recovery Act on Social Safety Net Programs Before the House Budget Committee, December 9. http://www.cbpp.org/cms/index.cfm?fa=view&id=3028
(5) Congressional Budget Office. 2010. "Estimated Impact of the American Economic Recovery and Reinvestment Act on Employment and Economic Output from October 2009 Through December 2009." Feb. http://www.cbo.gov/ftpdocs/110xx/doc11044/02-23-ARRA.pdf
(6) Shierholz, Heidi. 2010. “Labor market closes 2009 with no sign of robust jobs recovery” Washington, DC: Economic Policy Institute Working Paper. January. http://www.epi.org/publications/entry/jobs_picture_20100108/
(7) Johnson, Nicholas , Erica Williams and Phil Oliff. 2010. “Governors’ New Budgets Indicate Loss of Many Jobs if Federal Aid Expires.” Washington, DC: Center on Budget and Policy Priorities. http://www.cbpp.org/cms/index.cfm?fa=view&id=3076
(8) Also see “The Federal Government Deficit: An Essential Tool for Putting People Back to Work and Ending the Economic Downturn” at http://www.ucc.org/justice/financial-crisis/deficit.html and Krugman, Paul, 2010, “Fiscal Scare Tactics,” New York Times, Feb 4. http://www.nytimes.com/2010/02/05/opinion/05krugman.html
(9) See “For the Sake of Our Children, the Federal Government Must Run a Deficit at this Time” at http://www.ucc.org/justice/financial-crisis/children-deficits.html
(10) Mortgage Bankers Association. 2010. Press Release February 19. http://www.mortgagebankers.org/NewsandMedia/PressCenter/71891.htm
(11) According to Deutsche Bank, as reported on CNN http://money.cnn.com/2009/08/06/real_estate/underwaterworld/
(12) Making Home Affordable Program Reports http://www.financialstability.gov/docs/report.pdf
(13) Stiglitz, Joseph. 2010. Freefall. New York: W.W. Norton & Co., Inc., p. 100.
(14) Morgenson, Gretchen and Don Van Natta, Jr. 2009. “Even in Crisis, Banks Dig in for Battle Against Regulation. New York Times, June 1, A1. Kirkpatrick, David D. 2010. “Irked, Wall St. Hedges Its Bet on Democrats.” New York Times, Feb. 8, A1.
(15) See Stiglitz, 2010, op. cit.
(16) The Gramm-Leach-Bliley Act
(17) The Economist. 2008. “Derivatives as weapons of mass destruction.” Sept 18. http://www.economist.com/finance/displayStory.cfm?story_id=12274112.
(18) For data on the U.S. see Economic Policy Institute. 2010. “A long and persistent middle-class squeeze.” Washington, DC: EPI. Feb 3. http://www.epi.org/analysis_and_opinion/entry/a_long_and_persistent_middle-class_squeeze/
(19) Center for Responsive Politics Capitol Eye blog. 2010. “Midterm Elections Will Cost at Least $3.7 Billion, Center for Responsive Politics Estimates.” February 23. http://www.opensecrets.org/news/2010/02/midterm-elections-will-cost-at.html
(20) Candidate Obama agreed to do this, and it was endorsed by General Synod XXVII (2009) http://www.ucc.org/synod/resolutions/gs27/nafta.pdf
(21) See Economic Policy Institute. A Plan to Revive the American Economy, page 57. http://www.epi.org/publications/entry/plan_to_revive_the_american_economy/
(22) For more information see http://www.ucc.org/justice/worker-justice/unions/efca.html
(23) For more information see http://www.ucc.org/justice/immigration/
(24) See the General Synod XXV (2005) http://www.ucc.org/justice/public-education/pdfs/Resolution-for-the-Common-Good.pdf