I first latched on to the idea of a second federal stimulus when I was preparing testimony to the Oregon Legislature, trying to avoid funding and services cuts to vulnerable people. I proposed some progressive tax increases, but those were not enough, and Robert Reich had calculated that state budget cuts and tax increases were already projected to total $350bn, enough to negate nearly half of the first stimulus. So I joined Mr. Reich, Paul Krugman, and James K. Galbraith in calling for an additional federal stimulus. At the time the idea was eminently sensible and reasonable but like many such ideas, was almost too far out to propose without people rolling their eyes.
In just the ten weeks since, the idea, still as sensible as ever, has nevertheless entered the mainstream of public discourse. I commented on that fact, and outlined the need for a restructured economy, in a letter today to the Financial Times, the pre-eminent financial newspaper (it’s much more useful and informative than the Wall Street Journal, and Obama says he’s been reading it for 20 years). Here’s the letter, which I hope speaks well enough for itself:
Progressive Democrats of America went on record in support of a second stimulus with its May 18, 2009 publication of my assessment of the financial and economic crisis and a plan to address it. The idea was not original — I got it from Robert Reich, and Paul Krugman and James K. Galbraith also supported it — but it was hardly part of mainstream discussion, despite Reich’s calculation that a projected $350bn in State budget cuts and tax hikes would predictably negate nearly half the impact of the $787bn first federal stimulus.
In less than two months, that snowball has become at least a small avalanche: on June 29th, the FT reported that Christina Romer, chair of the White House Council of Economic Advisers, had said the administration would be open to further stimulus if needed, acknowledging that cutbacks by states facing budget crises would push in the opposite direction. Laura Tyson of the president’s Economic Recovery Advisory Board came out in favor the following week. But my jaw actually slackened a bit when I realized the July 11-12, 2009 FT editorial I was reading called for a second stimulus, specifically targeting the states on condition the money be spent quickly.
A second stimulus is critical as a holding action, to keep us from going over the cliff. As Aline van Duyn notes (also July 11-12, 2009), alluding to Nouriel Roubini’s recent analysis, “green shoots” have been replaced in the discussion by talk of weeds that may, in the case of the US economy, turn to manure. Obama should recognize and level with the public about the dimensions and severity of the problem, and return to Congress for a second stimulus to help the states maintain vital services and avoid tax increases, and Congress should heed the request.
But if we are to pull back any substantial distance from that cliff and begin to grow our economy, it must be done sustainably, and here I think the metaphor of manure in its positive meaning, as a fertilizing substance that replenishes and nourishes the soil, is useful. The US economy isn’t a car in running condition that just needs a jump start to resume operations, it’s a field of depleted soil that needs a whole range of remedial measures, so that when we’re done with stimuli the debt we’ve incurred has not just ameliorated the effects of the crisis but encouraged the emergence and growth of real green shoots with a future.
Of course we need the capacity to generate and sustain sufficient aggregate demand. Since wages have stagnated for roughly thirty years, the demand that sustained the world economy till recently came from US consumer debt. That source cannot be revived both for arithmetic and psychological reasons: People can’t afford to borrow more, and they’re understandably afraid to. So we need debt relief as well as more and better jobs at higher wages. Hence the roots of the problem must be addressed, including the obscene concentration of wealth that has left US households without money to spend, and the so-called trade agreements that have offshored and outsourced much of the US manufacturing sector. We should facilitate rather than hamper labor organizing, through such measures as the Employee Free Choice Act, and revisit the trade agreements, through such legislation as the Trade Reform, Accountability, Development and Employment (TRADE) Act, to be introduced in this session of Congress by Senator Sherrod Brown (D-OH) and Rep. Mike Michaud (D-ME).
We of course also need repaired and improved infrastructure, with the emphasis on energy conservation, mass transit and renewable sources, as well as education to prepare workers for the jobs of the future, and a universal healthcare system to enable U.S. firms to be viable and compete.
However, when the U.S. and Western economies have recovered from past recessions, as well as the Great Depression, they had at their disposal – and have now substantially disposed of – the resources of the natural world – including not only cheap oil but also abundant land, air and water – to resume operations. With natural resources now considerably more expensive and the continued operation of the Old Economy threatening the means of life (e.g., overfishing the oceans) and the biosphere itself (e.g., arable land, breathable air, drinkable water), the creation of more jobs at higher wages will require a complex process of reconstructing an economy as if people and the Earth mattered. We need something – indeed many things – to be substantially different, including, for example, the means of producing food by sustainable agricultural practices, with less chemically dependent agribusiness and much more locally based, smaller-scale and sustainable farming.
How to pay for all this, and save the dollar to boot? We might start by recovering the ill-gotten gains of those who apparently caused or contributed to the crisis through fraud. In the wake of what appears to have been far and away the biggest financial scam in the history of the world, nobody but pikers like Bernie Madoff has even been investigated. A tax on financial transactions would also help. So would cessation of our foreign military adventures deceptively marketed as the “war on terror,” or whatever our current wars come to be called, now shifting from Iraq to Afghanistan and Pakistan. These have been an enormous waste of resources as well as human lives, as a substantial consensus among knowledgeable analysts finds – as was predicted – that the result has been an increase in terrorism. Another increasingly glaring fact about these wars is that we just can’t afford them anymore. We’re waging them on credit, and increasingly on credit from foreigners. And – besides the appalling and immoral loss of human life, an immeasurable cost – the resources wasted on these destructive activities are wholly unproductive economically, as well as needed elsewhere.
Much or all of this is of course anathema to US elites. But these civilizing measures are essential if the US is to avoid becoming a Third World country beset by disillusionment with public institutions, social unrest, and possibly violence on a grand scale, and instead emerge from the present crisis in substantially different but still civilized form.
These and related suggestions are developed in greater detail at http://pdamerica.org/articles/news/2009-05-18-10-29-00-news.php and on my own blog at https://healingjustice.wordpress.com/. Another useful summation of much of the foregoing is E. F. Schumacher’s Small Is Beautiful (recommended by Harry Eyres, January 31 and in Mr Don Cropper’s letter, July 11-12, 2009).