*2.8 million jobs lost last year. Millions of families facing foreclosure and the loss of their homes. Food kitchens swamped. And it is going to get worse.
We need fast and bold action to staunch the bleeding, and limit the damage. We need a large recovery plan that creates jobs now.
Economist Dean Baker estimates that the collapse of the housing industry will cut $450 billion from in the pace of annual residential construction; the loss of $8 trillion in housing wealth will reduce annual consumption by around $450 billion; the loss of $8 trillion in stock wealth will cut another $250 billion. In addition, the collapse of the non-residential real estate bubble will likely reduce annual demand by another $200 billion. This gives us a total decline in annual demand of around $1350 billion or $2,700 billion over two years.
Only the federal government can fill this hole. Consumers are paying off debts; business is cutting workers; exports have plummeted; state and local governments are facing brutal deficits. Only the federal government has the capacity to borrow money and spend it to create the demand needed to get the economy going.
President Obama has put forward an $825 billion recovery package. If anything it is too small and contains too many tax cuts. Tax cuts, as we discovered last spring, are relatively ineffective at creating jobs – for the simple reason that worried consumers are more likely to use them to pay down debts than to add to spending.
Business tax cuts are the least effective of all, for the simple reason that no sane business executive will add jobs when he or she can’t see a market for the goods produced. With inventories piling up, businesses will use tax cuts simply to make their balance sheets look better.
We also need fast action. The months of delay while Bush refused to act have already been costly, as the decline accelerates and goes global. It is vital Congress act quickly to get this done, so the money can start pumping through the veins of the economy.
So what does the Republican opposition say? They want the stimulus to be smaller, nearly half the size of Obama’s plan, and larded up with more tax cuts for business, and threaten to obstruct passage to get their way. They don’t have the numbers to do that in the House. But in the Senate, they still can threaten a filibuster to delay action.
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