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December 01, 2008

Making the Economy Work Again

by David Madland

Americans are ready for change––ready for new leadership, ready for bold ideas, and ready for an economic agenda that strengthens working families, promotes sustainable growth, spurs American innovations, and establishes global leadership. Yet, our current economic situation is arguably worse than most Americans have experienced in their lifetimes. There is no doubt that your first days, months, and even years in office will be defined, in part, by the performance of the national economy. In order for America to prosper, your administration must present a clear road map for action, with short-term initiatives to get the economy back on track and long-term investments in our future that restore the American Dream for working families.

Our Current Economic Woes

Not only does our country face immediate economic challeng es––including a collapsing financial market and rapidly deteriorating labor market––but for some time, and especially over the past eight years, our economy has ceased to work well for the middle class. This one-two punch of short- and long-term problems is perhaps the most daunting economic challenge faced by a new president since the Great Depression.

The nation’s financial system currently is not functioning in any normal manner. Lenders aren’t lending and important financial institutions simply cannot meet many of their massive financial commitments. Stock markets are down dramatically, threatening the retirement of millions of Americans. Total jobs lost in 2008 reached two million, while the labor force will grow by more than one million in 2009. These figures mean that America faces a job shortfall of more than three million as you begin your first term in office.

Just as important, for many years now, working Americans have become less financially secure and their prospects for economic mobility have worsened. Working hard and playing by the rules is not enough. Stagnant incomes, weak job growth, and deteriorating health and retirement benefits have become the norm. The historic link between greater productivity and higher wages has broken down. And although unions have been an important path to the middle class, just 7.5 percent of private sector workers were unionized in 2007, down from 24.2 percent in 1973.

The United States also has fallen behind many countries when it comes to equipping the workforce with the training necessary for individual and national success. Globalization and technology have changed the rules of the game, and, perhaps most alarmingly, we face an imminent danger to both our economy and our planet from global warming.

Unfortunately, the Bush administration failed to adequately address either the short- or long-term challenges, and its policies made many of the problems worse. The current financial crisis could have been mitigated if the Bush administration had blown the whistle on irresponsible mortgage lending practices and the out-of-control mortgage-backed securities market. Income inequality was made significantly worse by Bush’s tax cuts that disproportionately benefitted the wealthy. Health-care coverage could have been significantly expanded if Bush hadn’t vetoed legislation to cover millions more families. Instead of recognizing the economic opportunity presented by alternative energy, Bush chose to ignore scientists’ warning of global warming.

The Road Map

With this backdrop, it is essential that the federal government act quickly to get the financial markets back on track and to prioritize long-term initiatives aimed at rebuilding the middle class and harnessing a sustainable economic recovery. Currently, the list of economic policies being imple mented or under consideration may be an all-time record high. But with the right set of policies that include short-term fixes and expansive long-term reforms, your administration can restore U.S. economic strength and leadership.

The Short Term

Your administration must focus on stabilization policies that will restore financial markets to a semblance of normal functioning and pass stimulus measures that prime the pump for economic growth by assisting Americans who are most in need and most likely to inject money into our economy.

In order for the economy to improve, businesses and individuals must be able to rely on certain basic expectations to make investment and spending decisions––that major financial institutions will not fail, that credit will be accessible when needed, that interest and currency rates will be relatively stable, and that stock values will not swing too wildly. Measures to unfreeze the credit markets and bolster consumer and business confidence are important.

However, your administration should focus not only on bailing out massive financial institutions, but also on protecting homeowners with mortgages they cannot afford. Nationwide, 7.3 million homeowners––about triple the usual rate–– are expected to default on their mortgages between 2008 and 2010, according to research firm Moody’s Modifying mortgages to make them more affordable not only will help out individual homeowners, but also could allow mortgage-related assets to rise in value.

Stimulus measures should boost demand so that businesses gain confidence that there is a market for their products and they are therefore comfortable employing workers and making investments. Such measures also should help those people most in need, including those who are not only the most deserving beneficiaries and the most vulnerable to a weak economy, but also those who will spend the money immediately, allowing it to circulate through the economy.

Key measures that will help the most needy include boosting food stamp support, increasing energy assistance, and expand ing unemployment insurance. Indeed, only 37 percent of jobless workers qualify for benefits and the average length of unemployment increased in October to nearly five months. Some states also are cutting state jobs, dragging the labor market and the economy further down. Your administration can help cash-strapped state governments by expanding Medicaid to the states. As more people lose jobs and income, more people qualify for Medicaid. But many states are scaling back on the program because of their budget crises.

The Long Haul

Even once we have stopped the economic bleeding and the market has somewhat stabilized, we will need an economic re covery package that helps create jobs and gets our economy growing on a sustainable path. A green recovery plan can curb global warming and spur needed job growth. We can maintain long-term growth and assure a position of economic strength for the United States for years to come by enhancing the economic security and mobility of American workers, investing in innovation, and promoting a global agenda that supports all workers.

Climate change is the greatest moral and economic challenge of our time, but by focusing on a recovery plan that invests in green technology, we can turn it into our greatest opportunity. By reducing global warming, we can dramati cally decrease our dependence on foreign oil, export our cutting-edge technologies around the world, and create good jobs efficiently. The urgency and complexity of creating a low-carbon economy requires that you make the issue the centerpiece of long-term economic and energy programs.

A report by the Center for American Progress and the University of Massachusetts-Amherst Political Economy Research Institute introduced a green recovery plan that calls for retrofitting buildings to increase energy efficiency, expanding transit, constructing “smart” electrical grid transmission systems to make energy distribution significantly more efficient, and investing in advanced biofuels and wind and solar power ( Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy , September 2008, at pdf/green_recovery.pdf). With an investment of $100 billion, two million new jobs would be created over two years––far more jobs than would be created by alternative investments.

To ensure that everyone reaps the rewards of a stronger economy, it is essential that your administration work to enhance economic security and mobility for American workers by fostering the conditions in which they can protect and improve their own health, education, income, and wealth. Necessary measures include ensuring quality, affordable, and effective health care for all and providing access to effective education and training that prepares students and workers for career transition and advancement throughout their lives.

Health-care reform and improved education are both important for American workers individually and for the economy as a whole. Rising health-care costs create enormous challenges for workers, families, businesses, and governments alike. Moving quickly on reform is essential for our prosperity. Enhancing workforce skills brings greater opportunities to workers and makes the nation’s economy more productive and competitive.

A mericans also must again be rewarded for their work. This can be accomplished through policies that allow workers to successfully navigate an employment system that increasingly requires career change by reforming unemployment insurance and adjustment assistance, promoting portable and universal retirement plans, creating a fairer tax system, making it easier for workers to join a union, and making work pay by ensuring that the minimum wage does not lag behind other wages.

Finally, long-term growth strategies must restore America’s standing as an international economic leader both in terms of innovation and global labor standards. Your administration has the opportunity to leverage our entrepreneurial culture to create an innovation economy by making sustained increases in research funding and investing in training and education of workers. By focusing international economic policy on promoting higher living standards around the globe, your administration can help generate demand for American exports, solidify American leadership, and ensure that the rising tide produced by economic integration lifts all boats.

With a clear road map for action, the United States can regain its foothold as a global economic leader and rebuild economic security for all American workers.

David Madland

David Madland is the director of the American Worker Project at the Center for American Progress in Washington, D.C.