Gen. Greenspan's Timid March

We're not in a war economy yet. We're in an economy that's just plain
sinking. What to do? Federal Reserve Chairman Alan Greenspan has told Congress to
"wait and see" what happens before enacting a stimulus package lest it create
inflationary fantasies among traders of long-term bonds. In an extraordinary show
of newly bipartisan gutlessness, our representatives in Washington are heeding
his advice. Congress shouldn't listen to Greenspan. A stimulus is needed right
now.

Even before the September 11 terrorist attacks, American consumers
were in a deep funk. Personal-savings rates were nearing a 70-year low and
credit-card and mortgage debt were at record heights. Millions of Americans were
already stepping back from the brink. In June they paid down $1.8 billion of debt
and in July they took on no additional debt--the biggest two-month retreat from
borrowing in nine years.

Meanwhile, their jobs were disappearing. Last year the U.S. economy gained
1.76 million jobs. But since last March, it's shed more than 500,000 in the
private sector. Since April 1998, when factory payrolls peaked, 1.2 million
factory jobs have been lost. Even service jobs, which had grown steadily for
decades, recession or no recession, haven't increased since March of this year.
The job losses look even bigger when you consider announced layoffs.

And then came September 11 with its horrifying loss of life, shock of
vulnerability, and haunting uncertainty about the future.

Economies aren't built on mathematical models; they're premised on hopes and
fears. Consumers won't flood the malls if they're deep in debt, afraid of losing
their jobs, and, on top of that, worried about the nation's future and the safety
of their loved ones. They'll hunker down instead, batten down the hatches, cut
spending that's not absolutely necessary. Even spendthrift Americans save for a
rainy day if they see a storm cloud on the horizon--and September 11 wasn't just
a storm cloud. It was the closest we've come in living memory to Armageddon.

Under these circumstances, Greenspan's caution is ludicrous. It's also grossly
unfair. As the economy falls into steeper recession, the people hurt the most
will be those who are likely to lose their jobs first and have no cushion to fall
back on. These are the people who earn less than $35,000 a year, the bottom 40
percent of the American workforce--tens of millions of clerical workers, hotel
workers, retail and fast-food workers, health care workers, taxicab drivers,
custodians, and parking attendants. They're not only out of work in lower
Manhattan; they're in trouble all over America.

These people can't "wait and see" if the economy rebounds. Gross statistics
about the growth or shrinkage of the economy as a whole draw no distinction
between them and the professionals and managers at the upper reaches who, even if
they lose a job, are likely to have health insurance, pensions, and money-market
funds to cushion the blow and tide them over. Waiting and seeing if the rebound
occurs isn't all that burdensome for the latter group. For the bottom 60 percent,
it's a different matter. The economy will rebound, eventually. It always has.
That's not the test. The question is the human cost of the wait along the way.
And by this test, too, it's time to act.

Any stimulus right now should respond directly to these people caught in the
worst of the recession. The first priority must be to expand unemployment
insurance, which has eroded so much in recent years that it now covers fewer than
40 percent of workers who lose their jobs. For decades, states have been
competing against one another to lure and to keep footloose businesses by
trimming unemployment-insurance premiums. As a result, most eligibility rules
have been drawn so tightly that they exclude part-time workers, temps, and anyone
who's put in less than a year on the job. That automatically disqualifies a large
portion of these low-wage workers.

The solution is no more complicated--and far more reasonable--than
bailing out airline investors and executives with $15 billion. The federal
government should immediately add $30 billion to the unemployment-insurance trust
fund and instruct states that they can gain access to it if they loosen
eligibility during this economic emergency to cover anyone who's lost a job.

Next, cut payroll taxes by half, effective immediately and continuing for 12
calendar months. There's no better or more immediate way to get additional cash
into the hands of lower-wage workers. Eighty percent of American workers pay more
in payroll taxes than they do in income taxes.

Finally, restore some funding for the people about to be dropped from the
welfare rolls. With welfare's new time limits, their situation was precarious
enough even at full employment. Now, millions of needy Americans face a future
with neither jobs nor social aid.

If Greenspan is worried about the effects of such measures on long-term
interest rates, there's an easy remedy: Repeal the Bush tax cuts for the top 2
percent of earners that are scheduled to take effect in 2004. This would save
almost a trillion dollars--enough to erase inflationary fears in even the most
timid of bondholders.

Expanding unemployment insurance, temporarily slashing payroll taxes, and
restoring welfare funding don't sound like wartime measures, but they are. Not
only will they help boost consumer confidence and thus strengthen the economy;
they'll help the people who are hurting the most in this downturn and thereby
reaffirm that we're all in this together.

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