We're not in a war economy yet. We're in an economy that's just plainsinking. What to do? Federal Reserve Chairman Alan Greenspan has told Congress to"wait and see" what happens before enacting a stimulus package lest it createinflationary fantasies among traders of long-term bonds. In an extraordinary showof newly bipartisan gutlessness, our representatives in Washington are heedinghis advice. Congress shouldn't listen to Greenspan. A stimulus is needed rightnow.
Even before the September 11 terrorist attacks, American consumerswere in a deep funk. Personal-savings rates were nearing a 70-year low andcredit-card and mortgage debt were at record heights. Millions of Americans werealready stepping back from the brink. In June they paid down $1.8 billion of debtand in July they took on no additional debt--the biggest two-month retreat fromborrowing in nine years.
Meanwhile, their jobs were disappearing. Last year the U.S. economy gained1.76 million jobs. But since last March, it's shed more than 500,000 in theprivate sector. Since April 1998, when factory payrolls peaked, 1.2 millionfactory jobs have been lost. Even service jobs, which had grown steadily fordecades, 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 ofvulnerability, and haunting uncertainty about the future.
Economies aren't built on mathematical models; they're premised on hopes andfears. Consumers won't flood the malls if they're deep in debt, afraid of losingtheir jobs, and, on top of that, worried about the nation's future and the safetyof their loved ones. They'll hunker down instead, batten down the hatches, cutspending that's not absolutely necessary. Even spendthrift Americans save for arainy day if they see a storm cloud on the horizon--and September 11 wasn't justa 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 grosslyunfair. As the economy falls into steeper recession, the people hurt the mostwill be those who are likely to lose their jobs first and have no cushion to fallback on. These are the people who earn less than $35,000 a year, the bottom 40percent of the American workforce--tens of millions of clerical workers, hotelworkers, retail and fast-food workers, health care workers, taxicab drivers,custodians, and parking attendants. They're not only out of work in lowerManhattan; they're in trouble all over America.
These people can't "wait and see" if the economy rebounds. Gross statisticsabout the growth or shrinkage of the economy as a whole draw no distinctionbetween them and the professionals and managers at the upper reaches who, even ifthey lose a job, are likely to have health insurance, pensions, and money-marketfunds to cushion the blow and tide them over. Waiting and seeing if the reboundoccurs 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 theworst of the recession. The first priority must be to expand unemploymentinsurance, which has eroded so much in recent years that it now covers fewer than40 percent of workers who lose their jobs. For decades, states have beencompeting against one another to lure and to keep footloose businesses bytrimming unemployment-insurance premiums. As a result, most eligibility ruleshave been drawn so tightly that they exclude part-time workers, temps, and anyonewho's put in less than a year on the job. That automatically disqualifies a largeportion of these low-wage workers.
The solution is no more complicated--and far more reasonable--thanbailing out airline investors and executives with $15 billion. The federalgovernment should immediately add $30 billion to the unemployment-insurance trustfund and instruct states that they can gain access to it if they looseneligibility during this economic emergency to cover anyone who's lost a job.
Next, cut payroll taxes by half, effective immediately and continuing for 12calendar months. There's no better or more immediate way to get additional cashinto the hands of lower-wage workers. Eighty percent of American workers pay morein payroll taxes than they do in income taxes.
Finally, restore some funding for the people about to be dropped from thewelfare rolls. With welfare's new time limits, their situation was precariousenough even at full employment. Now, millions of needy Americans face a futurewith neither jobs nor social aid.
If Greenspan is worried about the effects of such measures on long-terminterest rates, there's an easy remedy: Repeal the Bush tax cuts for the top 2percent of earners that are scheduled to take effect in 2004. This would savealmost a trillion dollars--enough to erase inflationary fears in even the mosttimid of bondholders.
Expanding unemployment insurance, temporarily slashing payroll taxes, andrestoring welfare funding don't sound like wartime measures, but they are. Notonly 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 therebyreaffirm that we're all in this together.