Speculation has been rampant over why President Bush gave the boot to Treasury Secretary Paul O’Neill. We are told that O’Neill had to go because his shoot-from-the-hip remarks antagonized key members of Congress and the powers that be on Wall Street. Others speculated that the blood-letting was more show than go and was undertaken as part of Bush’s 2004 reelection strategy meant to show that he is, after all, concerned about the economy.
Treasury Secretaries do not make economic policy. While they may help develop policies, their job is to sell those policies, a job for which, as his last name implies, Treasury nominee, John Snowe, is particularly well suited.
But one thing is certain: the present state of the economy is not the result of the failure of individuals. Rather it is the result of failed policies – policies that no game of musical chairs can hide.
The most glaring failure is persistent unemployment that stood at 6 percent in November and is expected to stay in that range at least through the first half of this year. All in all, nearly two million jobs have been lost since the recession began in 2000. Worse yet, more than 800,000 unemployed workers – a number that increases by nearly 100,000 a week – were set to lose their federal extended unemployment benefits three days after Christmas, leaving them without jobs or income.
It should come as no surprise, then, that the median income of the bottom 95 percent of households declined 2.2 percent in 2001 and probably declined again in 2002. Wages of production/non-supervisory workers – 80 percent of the workforce – have grown by only 3.1 percent over the last 12 months, substantially less than the 4.1 percent over the prior 12 months and the lowest growth since the mid-1990s.
And there are other indicators of failed economic policies that are premised on cutting taxes for the rich and corporations, among them:
* a national health crisis with 43 million uninsured and an equal number underinsured;
* growing hunger and homelessness;
* a state budget crisis;
* growing inequality;
* a public school crisis.
The list goes on and prompts the question: Now what?
There is growing recognition that the economy is stuck on dead center and that something must be done to deal with the worst features of the crisis. But again a question: What can Congress do to help get the economy moving again?
First a “no, no.” Any stimulus designed to increase productive capacity – the supply side of the economy – will be ineffective in today’s conditions where a quarter of the nation’s factories lie idle because the public lacks the purchasing power to buy what these factories could produce. That rules out much of what Bush & Co. hold dear – making the 2001 cuts permanent, moving cuts scheduled for 2004 and 2006 forward and eliminating taxation of dividends.
Let us not shed any tears for corporations whose total tax burden for 2002 is expected to be only a bit more than 1 percent of gross domestic product, down from 2.5 percent in 2000 and 4.1 percent in 1965. By way of comparison, corporate income taxes are about 3.4 percent of GDP in other industrialized countries.
If it is to be effective, a stimulus package must generate growth and jobs, take effect immediately and be broadly based. And the surest way to do that is to put money into the hands of those who need and would spend it. The surest way to do that is force Congress to extend unemployment benefits and relax earnings requirements and other regulations that deny unemployment benefits to more than half of all laid-off workers.
Then there are tax cuts targeted at low- and middle-income families such as rebates on the wages of low-income workers. If pegged at 3.5 percent on the first $15,000 of wages, these rebates would provide a much needed boost of as much as $525 to nearly 150 million workers at accost of about $65 million.
And there are other ways that the crisis impacts working families as states wrestle with budget short falls that threaten spending for public schools, Medicaid for low-income families and for low-income elderly in nursing homes and other state programs now in jeopardy due to the fiscal crises facing most states. Thus another challenge – to increase federal revenue-sharing with the states by at least $50 million as part of any stimulus package.
The struggle for a meaningful stimulus package will not be easy. (How often we say that, these days!) Among other obstacles are the deficit hawks in both parties who are going to yowl about “fiscal responsibility” and “taxing and spending” – despite the fact that total federal spending has fallen from 22.3 percent of the economy in 1991 to 18.2 percent in 2000. Furthermore, federal spending is projected to decline further as a share of the economy and by reach its lowest level since 1965 in 2010.
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