The economy is failing. Banks are hurting and credit continues to dry up. Consumer debt is dangerously high; foreclosures and credit-card defaults are mounting. Consumer demand is dropping precipitously and exports can’t begin to make up the difference.
It’s now clear the Fed can’t and won’t stimulate the economy. This leaves fiscal policy as the sole remaining vehicle. Distributing those little stimulus checks this month were like dispensing aspirin for pneumonia. Blue-dog Democrats, Calvin Coolidge Republicans, and Ross Perot Independents all must understand the critical importance of deficit spending right now. It’s all we have left.
Congress only has a few weeks left and must put on the President’s desk a genuine stimulus before it recesses permanently, and the President must sign it if he has any hope of being remembered as even halfway competent. The fastest and strongest fiscal stimulus would be a one-year exemption of the first $15,000 of income from payroll taxes, starting as soon as the bill is signed.
This should be followed up by a major infrastructure spending bill soon after the next president is sworn in, based on a newly-formed capital budget. (Don’t get me wrong: I’m not in favor of large, permanent and growing deficits, such as McCain’s economic proposals will get us, and which will load America and the dollar with even more foreign IOU’s. The next fifteen months is when we need the fiscal stimulus.)
And then a far more progressive tax structure, so the middle class begins to have the buying power it needs to keep the economy going.
Unless fiscal policy is unleashed, the current recession has a 50-50 chance of turning into something far worse by this time next year.
Originally published at Robert Reich’s Blog and reproduced here with the author’s permission.