Reorienting the stimulus

By Michelle Chen Jul 10, 2009

The pushback against another stimulus package is in full force, with conservatives arguing that the “failure” of the first stimulus proves that another fiscal boost would be a mistake. Let us turn to the annals of wonkdom to establish some fundamental truths: First, the Center on Budget and Policy Priorities explains that the stimulus is generally working as planned, but must be revamped. Rising unemployment was expected from the outset, although “virtually all forecasts in both the public and private sectors underestimated the severity of the downturn. Nevertheless, the law has slowed the decline and will help the turnaround occur sooner than it would have otherwise.” Second, the Obama administration’s initial stimulus hasn’t trickled down to many communities and critical sectors. The Economic Policy Institute’s Ethan Pollack says:

the next round of stimulus should focus on what the first round underfunded or ignored: aid to cities and states, school construction, aid to transit agencies (to avoid fare increases and service cuts), and more support for low-income families.

What? That spastic tea-bag-inducing Uncle Sam spending spree actually failed to reach some people? Sure—the same people who got missed by the entire economy in flush times. In an analysis of Black male unemployment, Algernon Austin, director of EPI’s Race, Ethnicity, and the Economy program found that:

black male unemployment was at “recessionary” levels even back when the overall economy had been strong. In 2006, for example, unemployment was 3.9% among white men and 9.7% among black men. Even the historically deep recession the country now faces has not produced overall unemployment levels equal to what black men have faced for years. … “We won’t be able to solve these problems until we collectively admit that we have a problem,” said Austin, who called for more aggressive enforcement of anti-discrimination laws as well as the use of stimulus funds to create jobs specifically targeted to reach communities that have had consistently high rates of unemployment.

The Center for Social Inclusion recently cited a case study of a “missed opportunity” that neatly combines the gaps Pollack and Austin flagged: an urban, low-income, transit-oriented project that, with a little government help, could have broadened access to employment opportunities for New York City’s diverse communities. But instead, the Center says, the Metropolitan Transportation Authority is funneling the stimulus cash into a swanky glass and metal tower to adorn a subway stop in the Financial District. The right is now portraying the “failure” of the recovery package as a pretext for bashing other government economic interventions. The Heritage Foundation’s lament of the “hidden welfare spending” in the recovery package is now turning into preemptive warfare against repeating the “fruitless” approach of spending programs targeted to the poorest. The CBPP counters this alarmism by breaking down how safety net programs, like food stamps and the Earned Income Tax Credit, have exceeded expectations in lifting people out of poverty. But these programs have failed to keep pace with social needs over time, largely due to short-sighted “reforms” that slashed assistance for struggling families. Not surprisingly, the poorest got poorer:

if means-tested benefits were as effective at keeping children out of deep poverty in 2005 as they had been in 1995, some 1.2 million fewer children would have lived below half of the poverty line in 2005 — a reduction of more than half. The erosion of the safety net’s antipoverty effectiveness was concentrated at the very bottom of the income scale.

Which brings us to the last point: the structural weaknesses in the current economy demand more than a temporary salve. Former Labor Secretary Robert Reich comments on the shape of the recession’s trajectory:

My prediction, then? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained. The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t "recover" because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin.

Another round of stimulus could help put the brakes on the current crisis, but more importantly, it will provide the political space to stimulate new ideas on what is possible, inclusive, and equitable, as the economy stumbles toward a turning point. Image: Responsive By Design