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Coming To Terms With the Deteriorating Economy
Having worked in Washington for 16 years now, I've learned a bit about how an idea moves from the periphery of the debate here to its center. And this week you could feel that happen for the rising concern about our economy. Despite the President's emphasis on health care and climate change of late, there is a new and growing sense of urgency here about the worsening economy and whether the government's response so far has been adequate or effective.
Unemployment in Michigan is over 15 percent now, and the US unemployment rate is now higher than the EU's. In a Senate hearing on Thursday Chris Dodd publically criticized the President's mortgage foreclosure plan as not having delivered on its promise. A new study finds dramatic drops in state government revenues, which foreshadow both what will happen at the federal level later this year and significant troubles again with state governments themselves. While there was what appeared to be good news with the financial sector, a deeper analysis predicts significant troubles ahead even for banks who showed profits in the 2nd quarter. Twice as many banks have failed this year already as failed in all of 2007 and 2008 combined. Many friends of ours have talked in alarming terms about what is likely to happen to the commercial real estate market later this year, a coming crisis which could also devastate local and regional banks who have escaped the worst of the financial crisis so far. Add to that what could our first national flu pandemic in a generation, which if it is virulent as some predict, could slow economic activity and productivity even further.
The President is clearly paying attention to all this, and has begun to address these growing concerns head on. Last Saturday he devoted his weekly address to the economy. On Sunday he offered up a thoughtful op-ed on the economy in the Washington Post. On Tuesday the President proposed a compelling new community college plan which spoke directly to the struggle of existing American workers. On Friday NEC chief Larry Summers gave a speech reviewing the Administration's economic progress so far, and where it hopes to go in the months ahead. And next Wednesday night the President will hold a prime time press conference where one can be certain he will address the growing concerns about the economy to a national audience.
As he prepares for his remarks next Wednesday, he would be wise to heed the warning from a new letter offered up by 21 freshman Democratic House members this week. The NYTimes provides this summary:
Representative Jared Polis, a freshman Democrat from Colorado who voted against the bill approved Friday in the Education and Labor Committee, said he worried that the new taxes “could cost jobs in a recession.”
To help finance coverage of the uninsured, the House bill would impose a surtax on high-income people and a payroll tax — as much as 8 percent of wages — on employers who do not provide health insurance to workers.
Mr. Polis said these taxes, combined with the scheduled increase in tax rates resulting from the expiration of Bush-era tax cuts, would have a perverse effect. “Some successful family-owned businesses would be taxed at higher rates than multinational corporations,” he said.
In a letter to the House speaker, Nancy Pelosi, Mr. Polis and 20 other freshman Democrats said they were “extremely concerned that the proposed method of paying for health care reform will negatively impact small businesses, the backbone of the American economy.”
There have been calls from some quarters for a 2nd stimulus plan, an acknowledgement that what the first stimulus has not done enough to stop the current economic deterioration. This may be necessary, but I think what will need to be done is much more comprehensive than just a new stimulus plan. Future action could include a much more aggressive action against foreclosures, a more honest assessment of the health of our financial sector, an immediate capping of credit card rates and a rollback of actions taken by credit card issuers in the last few months, a speeding up of the 2010 stimulus spending, a completion of the Doha trade round and a much more aggressive G20 effort to produce a more successful global approach to the global recession, the quick passage of the President's community college proposal, enacting comprehensive immigration reform which will bring new revenues into the federal and state governments while removing some of the downward pressure on wages at the low end of the workforce, and recasting both the President's climate and health care initiatives as efforts which will help stop our downward slide and create future growth.
The worsening economy has become the nation's number one problem. We will need a new language to talk about it, moving beyond the words stimulus and recovery which no longer seem to speak to the gravity of the economic moment we are in. This is the most important work in front of the government now, and I look forward to hearing the President on Wednesday night about his plans for the remainder of the year.
For more on this be sure to read this excellent Thursday essay from Rob Shapiro.