Confronting the Economic Crisis
Carl Mellor

President Barack Obama signed the $787 billion stimulus package on February 17, following significant debate and compromise. It’s now possible to consider the package’s major provisions. They fall into four categories: good, bad, so-so and uncertain.
For starters, the legislation extends unemployment payments and enhances food stamp benefits. Both of these are rock-solid strategies for dealing with a severe recession; they make it possible for money to flow back into the economy quickly, and they support long-time federal programs. There will be immediate help for folks whose unemployment benefits expire after 26 weeks, an essential step during a time when more and more US citizens are losing their jobs.

There are other provisions that don’t have the same direct economic impact but are important nonetheless. The bill provides more money for Pell Grants, which assist college students, and for national parks. Over the past eight years, funding for our system of national parks was grossly inadequate, particularly in the areas of maintenance and repairs.

In terms of the bad, funding for public transportation is paltry at best and doesn’t begin to address problems happening throughout the country. At present, public transit authorities in St. Louis, Denver and Syracuse, to name just a few, are evaluating fare hikes and cuts in service. The St. Louis transit authority plans to lay off a quarter of its employees.

Among other problems, the transit crisis undermines the effort to build a green economy, increases a basic expense for the working poor, and keeps public transportation a lesser priority, a back-shelf item. In the US, public transit continues to face the same chicken-and-the-egg dilemma. Because funding is inadequate and services less than comprehensive, a limited number of people use public transportation. Because ridership, except in select markets like San Francisco or Boston, is fairly small, it’s very hard to build a constituency backing public transit.

Next, let’s move on to the really bad aspects of the bill. Yes, I’m talking about the tax credit extended to new house buyers who purchase a home during 2008 or 2009. This is not an unlimited credit; its benefit decreases as household income increases and ultimately fades out altogether for more affluent households. And it is intended to encourage home ownership. Who can oppose such a measure?

Well, I do. This is a high-ticket item with little potential for stimulating the economy. In much of our country, in cities like Cleveland, Las Vegas and Fort Myers, Florida, real-estate markets are plagued by tight credit, by decreasing property values that may not have hit bottom yet, and by people’s fears about having a job. Until the economic climate improves, a tax credit will have little impact on consumers buying a home.

There’s one scenario in which the tax credit could play a significant role. The Obama administration has released its plans for “Bank Bailout Two,” for spending the $350 billion Congress previously allocated for propping up the bank industry. If this new bailout effort proves successful, then credit will loosen up. However, initial discussion of the plan was long on concepts and short on details.

At a February 10 press conference, US Treasury officials didn’t discuss concrete strategies for dealing with “zombie banks,” institutions that are insolvent and stay afloat only by accessing public dollars. Without such a strategy in place, it’s impossible to resolve credit problems and start the economy moving again.

Then there are provisions that are a mixed bag. From the onset, it seemed clear that a stimulus package would include some version of tax cuts. In fact, Congress wouldn’t have passed a stimulus bill without inclusion of tax cuts. The final version includes a $400 tax credit for individuals and $800 for families. Wage earners will see small increases in their paychecks but are unlikely to boost spending based on this modest change.

In addition, this provision eats up about 36% of the final package, a percentage that is far too high. And the tax credit is being implemented at a time when the Obama administration has already proposed other changes in tax policy that would lower taxes for most citizens. However, passage of a bill rewriting federal tax codes is months down the road.

Finally, there’s much uncertainty about how the administration will spend dollars allocated for infrastructure: building roads, bridges and other projects; seeding work vital to a green economy – insulating homes, retrofitting government buildings, making greater use of solar collectors, wind turbines and other alternative technologies.

President Obama has promised that funds for “shovel ready” projects will flow to states, cities and counties without the earmarks typically attached to such spending. Yet we don’t know how he and his advisors will make final decisions on funding.

Similarly, building a green economy sounds like an excellent idea. Who will be hired for the jobs generated by green initiatives? As we look at ways to revitalize the US economy, we must not neglect solutions for abysmal levels of unemployment in various urban areas and rural counties, including upstate New York.

Progressives should be advocating not only for general measures to stimulate the economy but also for initiatives to address chronic unemployment. This is not a matter of creating a new jobs program that will take years to get off the ground. In a chapter in his book, “The Green Collar Economy,” Van Jones discusses community partnerships as well as groups, like Greencorps in Chicago, SolarRichmond in Richmond, California and Second Chance in Baltimore, that already provide jobs, teach skills useful in other positions and do useful work. 

Will any of the stimulus package reach such community groups? We will soon have an opportunity to evaluate the choices made by President Obama and his advisors on this and other fiscal matters.

For example, we will learn much from decisions regarding military spending. At present, our government spends massive sums of money on the wars in Iraq and Afghanistan, funds staggering cost overruns in weapons systems (almost $300 billion over the past eight years) and still builds planes designed to fight the Soviet Union.

Even a modest reduction in military spending would free up billions for economic development and offer more flexibility in responding to the fiscal crisis. Whether the Obama administration will be bold enough to pursue this course of action remains to be seen.



Carl is a longtime member of SPC and Cooperative Federal Credit Union.