Pass Second Stimulus, Congress
By: Harold Ford, Jr. | Politico
The recession that has caused immeasurable pain to American families has now lasted more than a year — the longest since the Great Depression. We’ve reached a pivotal moment, where the U.S. economy can either build on hopes of recovery and begin to grow once again or slide back into an even deeper contraction — one that could last years and have devastating effects.
This is not a time to sit by and wait for events to take their course in the hopes that the second scenario won’t occur. It can happen. And if it does happen, it is unclear whether any fiscal or monetary policies will get us out of it.
The emergency stimulus package that Congress passed in February is still being disbursed. But that is no reason to sit around and wait. This recession is much deeper, job losses more widespread and the danger of a prolonged downturn more real than we thought earlier this year. Then, unemployment was expected to peak at 8.5 percent. It is now 9.5 percent nationally and well over 10 percent in many parts of the country. Job losses actually increased from May to June.
The first stimulus will ultimately inject $787 billion into the economy, including $60 billion wisely invested in energy innovation.
At the same time, the recessionary pressures on the economy cannot be underestimated. More than $10 trillion in wealth was lost in U.S. stocks and real estate last year. According to Bureau of Labor Statistics estimates, 7.2 million Americans have lost their jobs since the recession began. The flow of credit to small businesses has slowed, impeding the entrepreneurial energy that is the key to growth and recovery.
The biggest threat right now is that unending job losses will trigger even more foreclosures and sap the confidence needed to revive consumer spending and investment.
Worse, without action, the budget shortfalls facing U.S. states will force them to sacrifice the very investments that will allow for long-term growth — investments in education, job retraining and clean-energy technologies. Forty-eight states are facing budget deficits for the current year. Combined, the shortfall represents a quarter of state budgets.
To be effective, a stimulus must be designed to have an immediate impact in creating jobs and helping states weather the current economic crisis. At the same time, it cannot add to our long-term debt.
Designing a fiscally responsible stimulus is also the key to building political support. Recent polls have shown that a majority of the American people oppose a second stimulus. Clearly, this is not because they believe the economy is doing well. They would want Congress to do something, but they simply don’t trust it to do the right thing. They recognize the need for bold action but do not want Congress to drown the next generation in debt.
With these principles in mind, here is what I hope to see included in a second stimulus:
The stimulus must provide immediate aid for states of $150 billion to meet the current budget shortfalls. But to ensure fiscal responsibility, this aid should come in the form of loans, not grants.
Rather than apportioning aid to states solely by population, it should be conditioned on states developing plans to restore fiscal sustainability in the long term. I propose that the president appoint a five-person board to review aid requests from states on the basis of the states’ proven commitment to cutting waste, finding more stable revenue sources and making smart long-term investments. In the meantime, Congress must extend unemployment benefits for those who have exhausted theirs while struggling to find a job in this economy.
The stimulus should also use the most efficient and fast-acting method to boost workers’ paychecks and relieve employers’ payrolls: a 10-week holiday from payroll taxes for employers and businesses.
To ensure that an immediate stimulus does not hamper long-term growth, we must find ways to pay for it, including requiring states to repay loans. In addition, as banks repay principal and interest from the Troubled Asset Relief Program, Congress should dedicate the incoming funds toward immediate stimulus.
It is also critical that we take concrete steps to restore fiscal balance in the long run. New budget estimates for health care reform show that tough measures to rein in spending and curb reimbursements can have a significant impact on the rate of growth in costs. The unfortunate truth is that cost-cutting may need to be prioritized over expansion of coverage, which, in any case, is unsustainable without massive cost savings.
Through an emphasis on innovation and investment in new energy industries, President Barack Obama’s administration has begun to lay the groundwork for a U.S. economy that bolsters its position as the driving force of economic growth worldwide. But with job losses mounting, the threat that our economy will go in a different direction, toward prolonged, self-reinforcing stagnation, is too real to ignore. This is not a time for caution or moderation but, rather, for decisive action to create jobs.
Harold Ford Jr. is the chairman of the Democratic Leadership Council.