Free fall. The US has lost private sector jobs for 10 straight months. One quarter of all businesses in the US plan to cut payroll over the next year. Retail sales fell in October by the largest monthly drop on record. Auto sales have collapsed, driving the auto companies towards the precipice. Unemployment is up to 6.1%, with most analysts predicting it will soar past 8% over the next year. (That translates into unemployment among young minority men at rates of 50% or more). States are now facing $100 billion in deficits in operating budgets for the next fiscal year. Twelve million homes are "under water," worth less than their mortgages. The US has joined Germany and Japan in what is becoming a global recession.
The era of big government is over is over. In the crisis, we are, as Richard Nixon once said, "all Keynesians now." Former Clinton Treasury Secretaries Robert Rubin and Lawrence Summers, until recently notable deficit hawks, now call for substantial fiscal stimulus -- deficit funded federal spending -- to get the economy going.
Summers whose alliterative guidelines for this year's earlier $150 billion stimulus -- "timely, temporary and targeted" -- helped to fix its mistaken focus on tax rebates, has changed his consonants. Now he says the stimulus should be "speedy, substantial and sustained," noting that some estimates on Wall Street have gone as high as "$500 to $700 billion." Rubin agreed, saying "we need a very substantial stimulus," while mumbling about needing to reduce the budget deficit over the longer run.
A major recovery program -- featuring substantial public investment -- will be inevitably the first initiative of the Obama administration. It should feature more spending than tax cuts -- investing in renewable energy and conservation, in rebuilding everything from schools to bridges to a smart electric gird, in helping cities and states avoid crippling cuts of services, in keeping college affordable, providing health care to children, and aiding those most in need.
Our public investment needs can easily use the money. A stunning report by Eric Lotke at the Campaign for America's Future details the staggering investment deficits that have accumulated over the last thirty years. For decades, we've chosen to cut taxes on the wealthy while starving vital public investments. The result is an America that is literally falling apart, while much of the private wealth was squandered in the speculative frenzy that now has leveled our economy. Rather than adding to that folly, we should be focusing on strategic public investments that will put people to work in the short term while contributing to a more competitive economy, a better educated citizenry and a cleaner environment.
The Last Obstruction
The time to get started has already passed, as the downturn is accelerating. Tomorrow, as Senate Majority leader Harry Reid suggests, Congress should pass a $100 billion down payment on recovery, while instructing the Treasury Secretary to use some of the $700 billion rescue fund to help keep the auto industry from going belly up, with devastating effects throughout the Midwest.
But, as this is written, it looks like that won't happen. Republicans didn't get the message from the election, and apparently don't read the financial section of the papers. The Republican minority in the Senate seems intent on adding one last obstruction to its ignominious record. Secretary Paulson has indicated that while he's happy to throw $250 billion at Wall Street banks with no conditions, he isn't ready to save the Midwest with a $25 bridge loan for the automakers under strict conditions.
In the face of the threatened Republican filibuster, this Congress is likely to adjourn for the final time without acting on the deepening economic downturn. When the new administration and the new Congress convene next January, the crisis here -- and across the globe -- will surely be far worse. Make no small plans, President Obama, you are about to inherit the full catastrophe.