Joseph Stiglitz, the economist driven by hard numbers and moral considerations, has some suggestions for Bush and Congress. There probably isn't a hope in hell that his suggestions will be listened to. But we should be pushing Congress to take his medicine.
First of all, how did we slide into recession?
In 2001, the Bush administration used the impending recession as an excuse to cut taxes for upper-income Americans — the very group that had done so well over the preceding quarter-century. The cuts were not intended to stimulate the economy, and they did so only to a limited extent. To keep the economy going, the Federal Reserve was forced to lower interest rates to an unprecedented extent and then look the other way as America engaged in reckless lending. The economy was sustained on borrowed money and borrowed time.
We need an economic stimulus. But we need "a stimulus that stimulates," not another gift package to upper-income Americans. Here are Stiglitz's well-considered suggestions:
We should begin by strengthening the unemployment insurance system, because money received by the unemployed would be spent immediately.
The federal government should also provide some assistance to states and localities, which are already beginning to feel the pinch, as property values have fallen. Typically, they respond by cutting spending, and this acts as an automatic destabilizer. Federal assistance should come in the form of support for rebuilding crucial infrastructure.
More federal support for state education budgets would also strengthen the economy in the short run and promote growth in the long run, as would spending to promote energy conservation and lower emissions. It may take some time to put these kinds of well-designed expenditure programs into place, but this slowdown looks as if it will last longer than some of the other downturns in recent memory. Housing prices have a long way to fall to return to more normal levels, and if Americans start saving more than they have been, consumption could remain low for some time.
But what about tax cuts for individuals? Yes, but not across-the-board tax cuts and not for those in the top tier, Stiglitz warns.
Tax cuts in general perpetuate the excessive consumption that has marked the American economy. But middle- and lower-income Americans have been suffering for the last seven years — median family income is lower today than it was in 2000. A tax rebate aimed at lower- and middle-income households makes sense, especially since it would be fast-acting.
And keep people who are on the edge of dispossession in their homes. Not "bailing out investors" but working out legislation that will allow lower-income people to keep a place to live.
Something should be done about foreclosures, and appropriately designed legislation allowing those who have been victims of predatory lending to stay in their homes would stimulate the economy.
Stiglitz, a Nobel prize-winning economist, is often written off as an idealist. He's not. But he certainly appears committed to doing something about the cynicism and greed which have driven this democracy's capitalist economy off its tracks and has taken optimism, opportunity and pride in America with it.
Update: Here's a wonderful piece on what to look out for, recession-wise -- on how to understand and get through the economic downturn. HT/Ezra Klein at American Prospect.
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