The Roots of the Crisis
The unregulated growth of a wildly speculative nancialsystem – that is, a frantic attempt to “make money on money”rather than from productive investment – and the steadydecline of the purchasing power of the global working class are thetwo main causes of the current near-depression. The global economiccrisis stems, in part, from the classiccase of underpaid workers overallnot having money to buy the verygoods they make. To compensatefor their loss of purchasing power,American working families turnedto credit cards and borrowed againstinated home equity values. Oncethe housing bubble burst, as alleconomic bubbles eventually do, theintricate nancial world of collateraldebt obligations and credit-defaultswaps came tumbling down, takingwith them working families’ ability to sustain their livingstandards.Therefore, stricter government regulation of the nancialindustry must be central to any long-term economic recovery.The government must regulate the nance and bankingindustry so that it prioritizes providing credit on reasonableterms to productive enterprises. In addition, raising the oor under workers’ wages, benets, and working conditionsmust be central to a long-term economic recovery program.
Restore Working Families’Purchasing Power
The “economic recovery program” being debated inCongress must be large enough to revitalize consumer spending. Given that GDP declined by ve percent in thefourth quarter of 2008, it is reasonable to expect that theeconomy will operate for some time to come at ve percentor more below normal “full-employment” capacity. Thus,a stimulus program of roughly one trillion dollars per year,rather than the current Democratic House version of $825 billion over 2 years, would be wise.The most disabling myth promoted by both the right andmoderate Democrats is that government cannot efcientlyspend large sums of money fast enough. But, as RobertKuttner points out, the federal government could instantlyengage in a trillion dollars of useful stimulus simply bywriting checks. Here’s how. The federal government should:• Provide $200 billion in block grantsto state and local governments tomake up for the annual loss in stateand local revenue.• Allocate $100 billion to pay for half the increased costs in Medicaid thatstates will face.• Spend $100 billion to pay for COBRA coverage for laid-off workers and to allow people over 55 to buy into Medicare.• Use $50 billion to increaseunemployment insurance andexpand eligibility. (Currently onlyone-third of unemployed workersreceive unemployment insurance!)• Use $100 billion to expand the number of Pell grantrecipients and to increase the grants.• Move $450 billion to the Social Security Trust Fundso that workers would receive a one-year respite from paying the regressive FICA tax. Such a measure wouldradically stimulate consumer demand.
Invest in Housing, Infrastructure and AlternativeEnergy
The second part of a stimulus package should includelonger-term investments that would restructure theAmerican economy so that it depends less on an over-expanded nancial sector and more on production of goodsand services that benet ordinary people.Congress should immediately create a modern versionof FDR’s Home Owners Loan Corporation. This publicentity should engage in direct federal lending to renancedistressed mortgages and, where necessary, reduce theoutstanding principal amount. The initial cost might beabout $200 billion, but most of the additional debt wouldeventually be repaid by home owners paying off newlyaffordable mortgages.
Economic Recovery ThatBenets
D e f e n d J o b s H e a l t h C a r e f o r A l l K e e p P e o p l e i n T h e i r H o m e s