RECESSION-PROOFING OUR ECONOMY
BY JULIANNE MALVEAUX
If our economy was hanging onto expansion by a thread, the events of
September 11 may well have pushed us into recession. It is not so much that
the nation’s financial center has been ravaged with the topping of the World
Trade Center towers, but that the nation’s confidence may have been shredded.
Consumer spending has been propping the economy up for much of 2001, but
with confidence waning, many economists are predicting that spending will
drop, too.
The airline industry, already posting losses for 2001, has cut back
schedules by 20 percent, and announced layoffs, because people are reluctant
to fly. It make take as long as a year for things to get “back to normal,”
what with Washington’s National Airport remaining indefinitely closed, and
new security creating daunting lines. Less air travel impact the entire
hospitality industry, with hotels, taxis, and other services affected by the
drop in travel. According to some estimates, every airline job lost
translates into three more job losses in the hospitality industry.
Is there anything that we can do to keep the economy healthy through this?
One the heels of one tax cut, House Ways and Means Committee Chairman Bill
Thomas (R-Ca.) is pushing another cut, this time to solely benefit the
wealthy. He wants a capital gains tax cut, a bad idea that would stimulate
stock selling when the market is already weak. Indeed, Democrat Robert
Menendez (NJ) said that legislation cutting capital gains taxes might well be
called the “Panic Selling Encouragement Act of 2001.” There is no evidence
whatsoever that a capital gain tax cut will stimulate the economy. It
doesn’t spread money around, leaving it in a few hands. It is a mistake for
Republicans to push this legislation when we totter at the brink of a
recession.
Indeed, the tone and tenor of budget talks ought to change in the wake of
September 11. Instead of budget-balancing talk, Congress needs to talk about
ways to stimulate the economy and restore the buildings that were damaged by
terrorism. They need to talk about ways to deal with the tens of thousands
of job losses that are being announced. Instead of pushing for tax cuts and
yammering about lockboxes, the Administration out to consider increasing
government spending. This may be one of the times when a dose of
old-fashioned Keynsianism could stimulate the economy. Billions will have to
be spent to restore the World Trade Center and the Pentagon, but with tens of
thousands of layoffs being announced, billions more could be spent on some
kind of public works program, or on other targeted spending that will give
our economy a much needed boost.
For the past decade or so, we’ve been so focused on balanced-budget
spending, that we’ve forgotten that public spending can often give the
economy a shot in the arm. Countercyclical spending was once a time-honored
tradition, a way for us to spend ourselves out of an economic slowdown. To
be sure, this spending produced deficits. But it also pumped money into the
economy and kept people employed. It’s a tradition we ought to consider
given our economic circumstances.
Such spending flies in the face of conventional wisdom about the role of
government. Republicans have been on a mission to reduce government spending
and, indeed, to eliminate government’s influence on many areas of our lives.
The efforts to privatize both Social Security and education are really
efforts to shift the size of government. But with both unemployment rates
and layoffs rising, the Republican agenda to reduce government size may need
to be suspended. Too, those who have questioned what proper role government
plays in our lives need only look at events of September 11 to confirm the
very key role government has in developing and implementing safety and
security standards at our nation’s airports, and in other places.
Already, Congress has appropriated $40 billion, and airlines are asking for a
bailout of another billion dollars or so. Additional spending of $10 to $20
billion, targeted toward employment programs, could make the difference
between slow growth and no growth. It could also make the difference for
those individual families who are affected by changes in key industries.
Many economists are hoping that consumers will keep spending, perhaps
patriotically, to prop the economy up. But it is unwise to prod consumers,
many of whom are already experiencing financial problems, to undertake unwise
spending. It makes much more sense for government to encourage spending by
pumping more money into our slow economy. It is one sure way to avoid the
recession we seem headed for.