WHEN WILL THE ECONOMY RECOVER?
BY JULIANNE MALVEAUX
With the news that gross domestic product shrank by 0.4 percent in the
last quarter, it is all but certain that we are now living in recession.
After all, the definition of recession is two straight quarters of economic
contraction, and the economic turbulence that has followed September 11 has
guaranteed slowing growth and less consumer confidence than ever.
Unemployment benefit claims are at a decade-long high. Unemployment
rates are rising, and are likely to continue to go up. More and more people
are filing for bankruptcy and small businesses are being shaken to the core
by declining demand. The fourth quarter, always important for retail sales,
is likely to be a disappointment. It doesn’t help when the Attorney General
announces that an attack is "imminent" but gives no specifics of the attack.
Many people are avoiding large gathering places – restaurants, sporting
arenas, and shopping malls. Emotionally, it makes sense for people to bond
with family and friends during unsettled times. Our decisions to stay at
home, though, have ripple effects in the economy.
Thus, the National Restaurant Association has taken out ads urging people
to eat out. The airlines are cutting ticket prices and urging people to
travel more. Retail stores are slashing prices, offering merchandise at 50
percent off. And with consumer confidence down, people aren’t spending like
they did last quarter. With home sales weak, housing prices (and home
values) are likely to fall in the next year. This will put a damper on
spending, as some of those who have tapped home equity loans for extra cash
will be more careful about what the spend on.
I don’t think that any of these trends can be stemmed by the $212 billion
stimulus package that the House of Representatives approved this week. They
want to provide benefits to corporations, both by repealing the corporate
alternative minimum tax, and by allowing more business write-offs. Most
economists agree that these measures will hardly stimulate the economy, but
instead reward Mr. Bush’s long time corporate contributors. To call this tax
cut economic stimulus is to cynically exploit the national "state of
emergency" to the wrong end.
In contrast, Senate Majority Leader Tom Daschle (D-SD) says there will be
no stimulus package passed unless the package includes some relief for those
who are now unemployed. In addition to increasing the number of weeks that
one is eligible for unemployment insurance, we need to decrease the number of
weeks one must have worked to qualify. In addition, since so many Americans
cobble together a living through part-time work, a fair unemployment package
would also replace the incomes of part-time workers who have lost their jobs.
Congress has already approved $55 billion in spending since September 11.
This has included money for defense, but also billions in corporate
bailouts, especially to the airline industry. Some airlines responded to
their windfall by saying they could not afford to pay severance to the
workers they were planning to lay off. United Airlines cried wolf and used
scare tactics, saying they might go out of business if they did not get
worker concessions. It appears that those with their spouts in the federal
trough feel they should be allowed to collect money, but show no
accountability for it. At the very minimum, those corporations that get
federal relief dollars should relieve workers of anxiety by keeping them on
the job, or paying severance if it is important to lay them off.
If we want the economy to recover, we ought to institute countercyclical
spending measures to pump money into the economy and into the hands of
individuals. Legislation that authorizes federal participation in school
construction could pump billions of dollars into the economy and improve the
quality of our nation’s public schools, most of which are in need of repair.
Spending on federal highway construction could also breathe economic life
into communities that are now cash-starved. If we placed more dollars into
employment training, we could transform the lives of millions of low-income
workers whose skills do not match the needs of the 21st century. And putting
money into low-income individual hands means putting money into the economy,
since most low-income people are likely to spend dollars they get in the form
of a tax cut or rebate.
Too many never cashed in on the $300 they were promised months ago. If
we truly want to stimulate the economy, perhaps we can provide those dollars
now. Economic recovery won’t happen just because we choose to cut taxes and
spend money. It will happen when we target our spending to those who can
benefit most from it, and to those who are most likely to put dollars into
the economy. Corporate giveaways make shareholders happy, but they won’t
stimulate the economy. The Senate needs to remember that as they respond to
the President’s request for an economic stimulus package.