Now that Congress has dealt with the Wall Street crisis, it’s time to turn immediate attention to the expanding crisis on Main Street by adopting an economic stimulus package that will help to reverse the recession we are slipping into and restore the jobs we have lost through most of this year.
Congress should take $220 billion of the $700 billion it has set aside for the current crisis and apply it to those who need it most: the millions of economically distressed workers across the country who have gotten absolutely nothing from the "rescue package" so far.
A principal justification for bailing out Wall Street was to free up frozen credit markets. This would be important for
We should accept nothing less than full employment as a measure of economic recovery for
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Increase funding for existing income-support programs by extending eligibility and increasing payments to recipients. We propose adding $60 billion (about 40 percent of recent expenditures) to the earned income tax credit, unemployment compensation, housing subsidies, food stamps, and school nutrition programs.
Increase federal aid to the states so they can reverse cuts in their budgets made necessary by deficits arising from the weak economy. These cuts have hit Medicaid particularly hard, and other programs that help economically distressed workers. Some $50 billion sent to the states would relieve their budget shortfalls, restore cuts and send the money back out into the economy.
Send checks to people. The first stimulus package earlier this year sent money to almost everyone, including people at the upper end of the income distribution, who tend to save the money. Instead, the government should now send an average $2,000 check to each of the 55 million households in the bottom half of the income distribution, those making less than $50,000 a year. These families will spend the money they receive, simultaneously relieving their own economic needs and stimulating the new production and employment required to meet their new demand for goods and services.
Economic stimulus should also come from infrastructure projects. New and repaired bridges, roads, ports and rail lines will provide long-term support for private- sector economic growth once they’ve been completed, as well as offer short-term stimulus from the jobs and income they generate as they are built. But infrastructure projects take a year or more to begin, so other stimulus measures must come first. As the big projects get started, and as the economy improves from the three elements of this package that can be implemented quickly, payments for income support and subsidies to the states can be reduced.
The most important force that could sink economic recovery despite a stimulus package is the undertow of the millions of home foreclosures we will see in coming months, as the last of the junk mortgages issued into April 2007 reach their two-year reset.
The Hope for Homeowners Act Congress passed in July is woefully inadequate, extending relief to only 400,000 homeowners and offering them only less onerous interest terms if creditors agree. Congress should extend the relief to all who will need it, and allow bankruptcy courts to reduce the value of the mortgages as property values have fallen, requiring banks holding the mortgages to absorb some of the losses as well as the homeowner.
Trickle-down economics is hopelessly passé. We can no longer believe that if we take care of the rich, the rest of us will come along nicely. Whatever the merit of the Wall Street bailout, a new initiative must now come to address the needs of economically distressed workers whose lives have dropped from view as the larger-than-life drama of Wall Street moguls has diverted our attention.
[Michael Zweig is a professor of economics and director of the Center for Study of Working Class Life at