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Second Stimulus Needed to Create Jobs and Revive Our Economy

SOURCE: AP/Orlin Wagner

A second stimulus could create jobs and prevent further economic harm.

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With 605,000 jobs lost so far this year and an unemployment rate topping 6 percent, the U.S. economy—and especially its labor market—needs another shot in the arm. The economic stimulus package passed in February gave the economy a helpful prod and staved off an economic contraction over the summer. The Treasury Department and Federal Reserve are intervening in financial markets on a massive scale to hold off a complete collapse wrought by their own and other agencies’ incompetent supervision of Wall Street business practices. But other stimulus measures are needed as well.

The various options Congress is considering should address the short-term crisis in the labor market and the eight years of stagnant incomes and weak job growth. We have a crisis but need to do more than apply a quick fix. Steps that begin to address our fundamental problems include:

  • Creating jobs by jump-starting our transformation to a low-carbon economy. The Center for American Progress Green Recovery proposal would create 2 million jobs over two years by investing in six green infrastructure investment areas. Representative Hilda L. Solis (D-CA) has proposed a Green Jobs Act that that would rapidly train workers to fill these jobs; the National Renewable Energy Laboratory identified the lack of a skilled workforce as the key non-technical barrier to the advancement of these industries. Jobs created from this investment would be targeted at the struggling construction and manufacturing sectors.
  • Investing in infrastructure. The nation’s highways and roads are in abysmal condition. The Congressional Budget Office points to a shortfall of $20 billion just to maintain current levels of transportation service. According to the American Association of State Highway and Transportation Officials, states could award and begin immediately over 3,000 highways projects employing 626,000 people. Investments in mass transit would also provide a robust source of jobs and help reduce our dependence on foreign oil.

Other measures needed now to prevent further harm and provide a needed boost include:

  • Expanding Unemployment Insurance. The federal unemployment insurance program contains so many restrictions that only about 37 percent of jobless workers qualify for benefits. Most disturbing during a time where jobs are hard to come by is that those who are experiencing long-term unemployment are not eligible. Congress should therefore temporarily increase unemployment insurance and extend coverage for those who will not get it otherwise. This measure will be particularly effective because recipients of unemployment insurance will spend their benefits quickly.
  • Increasing Energy Assistance. The Low Income Home Energy Assistance Program, or LIHEAP, has been helping low-income families manage energy costs and stay warm during the winter since 1982. But the program currently reaches only about 16 percent of eligible households. Due to limited resources, LIHEAP tends to target the poorest families and those with vulnerable members. Thus, despite the higher established income caps, 70 percent of recipients have incomes of less than 100 percent of the federal poverty level. Congress should provide new funding to LIHEAP in the amount of $5.1 billion for the fiscal year, which is the amount that Congress is authorized (or able) to spend on the program
  • Expanding Medicaid aid to the states. Roughly two-thirds of Americans who become uninsured have lost employer-sponsored health insurance. Analysts suggest that a one percentage-point increase in unemployment results in 1.2 million to 1.5 million more uninsured. As more people lose jobs and income, more people qualify for Medicaid, but states have often scaled back on the program because of their budget crises. Medicaid has a proven track record of picking up the slack from the decline in employer coverage, preventing 1 million more adults from becoming uninsured between 2000 and 2003. Expanding Medicaid to states will keep the program open to those in need. This proactive Medicaid policy would help preserve health coverage, jobs, and state financial stability—all of which are key to a quick economic recovery.
  • Boosting food stamp support. Low-income families are particularly vulnerable in a weak job market. The food stamp program is the most logical vehicle to quickly reach low-income families and individuals. There are 12 million participating households. The majority of participants are children and the elderly. Both low-income families with children and low-income couples and singles without children are eligible. The fact that states already have existing mechanisms for Food Stamp issuances would mean that the benefit could be issued quickly and efficiently. The CBO recently noted that “the vast majority of Food Stamp benefits are spent extremely rapidly,” which would provide a needed spur to the economy.

A new stimulus package will increase the growing federal debt, but opposition based on this concern is penny-wise and pound foolish. We are in the middle of an economic crisis that is considered by many to be the most significant economic downturn since the Great Depression. And the current difficulties come on top of an eight-year period where incomes fell, health and pension coverage decreased, and poverty increased. Though our rapidly growing debt is a problem we will need to address, our debt as a share of GDP is at far lower levels than it was in the late 1980s and early 1990s before Clinton administration policies brought it down, indicating that we will be able to address our debt problems even if deficits increase in the short term.

A new stimulus package cannot address all of our country’s major economic challenges. We will still need to reform our costly and inadequate health care system and fix the root causes of the housing market collapse, policies for which the Center for American Progress has long advocated. But a new stimulus package is a needed step toward ensuring that our economy doesn’t go further off course and good start toward creating the kinds of good jobs that will drive the economy of the future.

Michael Ettlinger is Vice President for Economic Policy at the Center for American Progress. David Madland is Director of the American Worker Project at the Center for American Progress.

For more details on the Center’s economic programs, please go to our Economy page.
or learn more from the Center for American Progress Action Fund’s American Worker Project.

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