by Randolph T. Holhut
American Reporter Correspondent
August 13, 2009
THE STIMULUS WORKED. LET'S HAVE MORE.
DUMMERSTON, Vt. -- It's still way too soon to proclaim an end to the current recession, but the good news is that we have avoided sliding into a depression. And we have the Obama Administration's economic stimulus plan to thank for this.
The conservatives may not want to give him credit, but two recent sets of statistics offer some clues on the effectiveness of the stimulus.
At the beginning of this month, we learned that the Gross Domestic Product shrunk by an annual rate of 1 percent in the second quarter of this year. That sounds bad, until you consider that the U.S. economy was contracting at a 5.4 percent rate in the final quarter of 2008 and by 6.4 percent in the first quarter of 2009.
The stimulus package helped end the free fall by putting money into the economy when the banks weren't lending, businesses weren't hiring and state and local governments were facing deep budget cuts. In addition, by extending unemployment insurance benefits, increasing food stamp payments and giving a modest tax break to working Americans, more money was put into the hands of the people most likely to spend it. That also put more money back into the economy.
On Friday, we learned that the August unemployment rate declined slightly to 9.4 percent, a drop that most economists didn't expect to see. It's estimated that the stimulus spending may have led to as many as 1 million additional jobs by the end of the second quarter. Again, it was federal spending filling the gap and putting money into a paralyzed economy.
But before we can break out the party hats, remember that the problems that remain in the U.S. economy are many. There isn't much hope that the economy will move into positive territory by the end of this year, but we probably won't see any drastic decreases in growth.
The number of long-term unemployed - defined as those who have been out of work for more than 27 weeks - has reached a record high of 5 million. Since the recession began, the nation has lost 6.7 million jobs.
"In a recession this deep, recovery doesn't depend on investors," economic Robert Reich wrote recently. "It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery."
Why is consumer spending down? People don't have money, and they haven't the ability to borrow money. Home equity loans and credit cards accounted for much of the prosperity in this decade, but one out of ten American home owners now owe more on their homes than their homes are worth. Unemployment continues to rise and many people who still have jobs are worried about keeping them.
In this climate, Reich believes consumers won't start spending until they have money in their pockets and feel reasonably secure. His prediction? "This economy can't get back on track because the track we were on for years - featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere - simply cannot be sustained."
The estimated $14 trillion in lost housing equity and retirement savings since this recession began in the spring of 2007 will also keep consumer spending down. The overbuilding in many areas of the nation means that construction and real estate will remain soft for a few more years. There still is an enormous amount of unused manufacturing capacity.
All this means that the $700 billion or so thrown into the economy by President Obama helped somewhat, but wasn't quite enough to deal with what's estimated to be a $2.3 trillion shortfall in demand in the next two years.
That is why, despite the cries of conservatives, another round of stimulus spending is needed. Without a further boost in federal spending, it's likely that the unemployment rate will hover around the 10 percent mark for another two years. The continued decline in the number of jobs, the amount of hours worked by those who are still employed and the amount of real wages earned means consumer spending will be tamped down for some time to come. The overcapacity in so many sectors of the economy means there is little incentive to invest in businesses or new construction.
The modest government intervention in the economy by the Obama Administration kept a recession from turning into a depression, but most Americans expect more. Instead of worrying about the deficit, Congress ought to worry about how to put 15 million Americans back to work and setting up our economy for sustainable and long-term prosperity.
That's why the next round of stimulus needs to do what wasn't done the first time around - make significant investments in projects to lay the groundwork for recovery and create more jobs.
We recently celebrated the 40th anniversary of the Apollo 11 moon mission, the culmination of a massive effort put in motion by President Kennedy in 1961 to put an American on the moon by 1970. Why can't we have a similar "can do" moment today? Why can't we have something big and visionary to put Americans to work repairing and rebuilding the nation's infrastructure?
It's time to put money and muscle into projects such as upgrading the nation's electrical power and broadband Internet grids, rebuilding our nation's railroad and mass transit networks and funding innovative environmental initiatives to create a "greener" economy. If this sounds like a 21st Century version of Franklin Roosevelt's Works Progress Administration, you're right.
The political pressure against doing something like this will be great, but the consequences for the nation if we don't do this are greater.
Randolph T. Holhut has been a journalist in New England for nearly 30 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at email@example.com. For extra added thrills, read his ongoing daily blog on The Harvard Classics.