Some say it should be used to enact financial reform. Most Americans despise Wall Street and want to be assured there’s no repeat of the grotesque sequence of river-boat gambling with the economy followed by a taxpayer bailout followed by seven-and eight-figure bonuses. Democratic strategists would love to let Republicans hoist themselves on their own petard by defending Wall Street.
Financial reform surely needs bucking up. The bill passed by the House last year was riddled with loopholes, delays, and cop-outs for the Street. The one that’s emerging from the Senate Banking Committee is only slightly better. It still allows a world of unregulated derivative trading and hands the ball over to the same regulators that punted last time. It doesn’t even include Paul Volcker’s watered-down remake of the Glass-Steagall Act. And the Senate bill is likely to get even worse as Harry Reid and Chris Dodd troll for Republican support. In an election year when Wall Street money is flowing freely to both parties, watch your wallets.
Notwithstanding all this, the biggest Next Big Thing ought to be jobs.
Including all those who have entered the job market since the bottom fell out, the nation is about 11 million jobs short. The President ought to use his second honeymoon to get a jobs bill that will make a difference.
Although the official rate of unemployment for the third of Americans with college degrees – the kind of people who inhabit executive suites, the media, and Washington – is now down to 5 percent, most Americas inhabit a different job planet. The unemployment rate is 15.6 percent among Americans with less than a high school diploma and 10.5 percent for those with only a high school degree. Even these rates understate the problem. Add in people working part time who’d rather it be full time, those too discouraged even to look for work, those working in a full-time job at fewer hours, and those who lost their jobs and have settled on new ones paying far less, and more than one in four of those without high school degrees are unemployed or underemployed; 22 percent of people with only high school degrees.
Considering that most households now rely on two wage earners (and most people tend to marry or cohabit with people who have roughly the same level of education they do) the situation is dire. A growing number of households have now sold off all their assets and exhausted their capacity to borrow from friends and relatives. That’s why the bad loans are still mounting: Households can’t meet their mortgage payments, can’t pay the rent, can’t meet payments on their credit cards and cars. It doesn’t have to be this way. It’s this way because companies and consumers aren’t able or willing to buy nearly enough to get people back to work, and government hasn’t yet filled the shortfall. The stimulus was too small to begin with and its peak level of spending is now over. In recent weeks, Congress and the Administration have been working on a bunch of proposals called “jobs bills,” but they’re so small relative to the size of the problem they should be called “almost jobs bills.”
One, recently passed, lets employers avoid paying payroll taxes for the rest of the year on each unemployed worker they hire (at a salary under $106,800), who has been out of work for at least 60 days. If the new hire remains at the job for at least 52 weeks, the employer can get a $1,000 tax credit on its 2011 tax return. The Congressional Budget Office estimated a similar payroll tax holiday proposal – not limited to workers who had been jobless for 60 days – would generate about 200,000 new jobs. With the 60-day limit, though, the number of hires is likely to be half that. Remember: The nation needs 11 million jobs just to catch up. On Wednesday, House Democrats passed several other morsels they called “jobs bills,” whose likely effect on unemployment is even smaller. One would bestow about $3 billion of tax breaks on small businesses. Another would further expand what are known as “Build America Bonds,” designed to help states and cities with new construction projects. The tab here is about $13 billion. It’s a worthwhile effort but given that the states and cities are running up deficits of some $125 billion this year alone and firing everyone in sight – even teachers – it’s smaller than small potatoes. It’s a lima bean.
On Friday, the White House will announce a new program requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, to no more than 31 percent of a borrower’s income (about what the borrower would be getting in unemployment benefits, if qualified), for up to six months. It’s another worthwhile step. But it deals with the symptom rather than the disease. The reason so many households can’t pay their mortgage is because someone has lost a job. There is no great mystery about what the federal government needs to do. It must mount a frontal attack on unemployment proportional to the problem. At least another $300 billion in stimulus money is necessary. Some should go to the states and cities to restore cuts; some should be applied to the nation’s crumbling infrastructure; a portion should go to direct hiring (a new WPA). This should be the Next Big Thing.
It won’t be easy. Most Americans don’t differentiate between temporary federal spending that’s necessary to get jobs back (which enlarges the current deficit) and permanent spending that’s built into federal programs (and creates big debt problems for the future). Many “moderate” Dems won’t even consider a second stimulus.
To accomplish it will require the President draw on his new store of political capital, mobilize his newly fired-up base, and capitalize on his renewed stature as a fighter for the people. But what’s a second honeymoon for if not for something the nation desperately needs?
Originally published at Robert Reich’s Blog and reproduced here with the author’s permission.