President Bush and his Treasury Secretary, Henry Paulson, will address two different audiences later today, the president in Chicago after a series of events around the city, and Paulson before the New York Society of Security Analysts. Both men are expected to emphasize the importance of tax cuts for the wealthy and further economic and financial deregulation as the answer to the serious economic troubles facing our nation this year.
Both “solutions,” however, are largely responsible for the deteriorating macroeconomic situation we now face. A variety of economic indicators point to a serious economic downturn this year that will not be reversed by the same old conservative platitudes about tax cuts and financial deregulation. Job growth is slowing markedly after six years of already anemic employment growth. Consumer spending growth is in sharp decline, consumer bankruptcy filings jumped 40 percent last year, and manufacturing activity braked suddenly last month despite rising export growth fuelled by a weak dollar.
The immediate cause of our economic troubles is the falling housing market, which Bush administration regulatory officials failed to police during the bubble years. Now, the housing market has yet to reach bottom yet the president and Paulson are still wedded to the idea of cajoling private-sector financial institutions and investors into helping beleaguered homeowners when the depth of the problem also requires targeted federal action.
The upshot: Just about every pillar of sustained economic growth—wages, housing, consumer spending, and exports—is heading south or is poised to tip in that direction. Tax cuts for the wealthy and further deregulation will do little to reverse the situation, and could well exacerbate the coming economic downturn while further expanding the growing gap between the rich and everyone else in the United States. The Bush administration’s plans are clearly too little, too late.
What will help spark a broad-based economic recovery are broad new measures to help the low- and middle-class families cope with falling housing prices and slumping wages alongside longer-term efforts to retool the U.S. economy to be greener, more competitive, and more energy- and technology-diversified than it is today. The Congress this year can help prepare the ground for the next administration to help working Americans boost their incomes and savings in a vibrant global economy.
First of all, Congress this year should create our proposed Family Foreclosure Rescue Corporation for distressed homeowners, a new agency that would help borrowers who have the wherewithal to make reasonable mortgage payments but lack enough equity in their homes to refinance their mortgages. In league with other, market-based solutions to the housing crisis now on the table, this new agency would help swiftly backstop the fall in home values and restore consumer confidence.
But helping homeowners is only an initial step. America’s economy must be driven by ongoing invention and the production of high value-added goods and services so that our workers can find good jobs at good wages to help grow our middle class. America could lead a global energy transformation based on more efficient technologies and clean, renewable fuels. These forces could reverse years of poor productivity growth and fuel the creation of good jobs and good prospects for workers at all skill levels.
Case in point: A “green jobs” program proposed by the Center could help slow the effects of climate change and help create a new and highly competitive economic sector offering good jobs paying good money. In tandem with measures recently passed by Congress to diversify our nation’s sources of energy, initial steps such as these could pave the way for far more meaningful energy, environment, and technology reforms necessary to retool our economy for the challenges of the 21st century.
America could put globalization and change to work for American workers and for millions around the globe. At the center of this vision is a strategy to address the greatest moral and economic challenge of our time—climate change—and turn it into our greatest opportunity. Left unchecked, the economic disruption caused by climate change will sap our resources and dampen our growth. But with low-carbon technologies and clean, renewable energy, we can capture a new global market, drive American economic growth, and create green jobs for American workers, offering new skills and new earnings opportunities up and down the economic ladder.
CAP’s economic blueprint for a new administration—see our Progressive Growth series of papers on transforming America’s economy through clean energy, innovation, and opportunity—would also leverage our creativity, entrepreneurial culture, and a restored leadership in science and technology to create an innovation economy and spur economic growth. It would seek to enhance economic security and mobility for American workers by creating the conditions in which they could protect and improve their own health, education, incomes, and wealth. It would refocus our international economic policy on promoting decent work and higher living standards around the globe, helping to generate additional demand for American products and services, restoring American leadership, and ensuring that the rising tide produced by economic integration lifts all boats.
Finally, CAP’s plan offers a responsible pro-growth fiscal policy that would value work and fairness and support necessary investments in our economic future while setting us on a course to reduce the debt as a share of Gross Domestic Product, and ready ourselves for the additional demands of the aging baby boom generation. Restoring economic mobility for Americans, sustaining economic growth in a global economy, and combating global warming are great challenges, but America is up to the task. From sweatshops to segregation to the space race, the progressive commitment to fairness, human dignity, and what FDR called “bold, persistent experimentation” has driven our country to overcome obstacles as great as the ones we face today.
To read more about the Center’s economic policy recommendations please see our Progressive Growth Series of papers on transforming America’s economy through clean energy, innovation, and opportunity.
To learn more about our proposals to tackle the home mortgage crisis please see our paper: Throwing Homeowners a Lifeline: A Proposal for Direct Lending to Qualified Troubled Borrowers.