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If We Really Want to Stimulate the Economy

by Maud Hurd

If we really want to stimulate our economy, we should put money in the hands of the people most likely to spend it. Economists from Paul Krugman to James K. Galbraith to Joseph Stiglitz agree, but this is exactly what the bill passed by the House of Representatives on last does not do.

Low- and moderate-income Americans are struggling to meet the costs of housing, utilities, health care, child care, transportation, and other necessities. Money that is put in their hands will immediately begin circulating through a variety of sectors of our economy.

At the same time, of course, it will alleviate the suffering of thousands of families trying to cope with poverty. Jobs and wages had not kept pace with the cost of living even when the economy was booming. When the economy slows down, lower income workers are typically the first to be laid off and the last to be rehired, and our current safety net is far from adequate to either help meet families’ needs, or provide counter-cyclical support to a flagging economy.

The idea that additional tax cuts for corporations will spur investment ignores the demand half of the supply-and-demand dynamic. It is horribly misguided as an attempt to stimulate economic activity, and horribly unfair in its focus on assisting those who need it least.

Laid off workers filing for unemployment benefits rose by 8,000 last week to 504,000, the second-highest number in almost a decade. An economic stimulus package should start by strengthening unemployment insurance. Eligibility rules should be reformed in order to reach more than the 39 percent of unemployed workers who currently qualify, to count workers’ most recent earning period in calculating benefits, and to provide extended benefits beyond the initial 26-week period.

During the recession that occurred under the presidency of George H.W. Bush, Congress released $35 billion (in 2001 dollars) in additional unemployment benefits. The Congressional Budget Office has estimated that the House-passed bill would provide only $2.3 billion in supplemental benefits by the end of next September. We need to be providing more relief than last time around, not drastically less.

Housing should also be addressed, because of its importance to economic stability, the inability of so many full-time workers to afford it, and the potential to create thousands of jobs by building affordable housing. Congress should implement a foreclosure/eviction prevention plan and provide $5 billion in immediate funds for the HOME Investment Program to build more affordable housing and create jobs.

In addition, the Bush Administration should stop holding up the release of $300 million in emergency funds that Congress appropriated for the Low-Income Home Energy Assistance Program (LIHEAP), and Congress should provide additional funding for this winter. Congress should also expand Medicaid to provide coverage for unemployed workers.

Critically important, Congress should take a step it was expected to take before the tragedies of Sept. 11, and one that is now needed all the more. It should boost the federal minimum wage from $5.15 per hour to $6.45, and it should make this change effective immediately, rather than phasing it in over three years, as had been proposed. Because the minimum wage is not set to automatically increase with the cost of living, every year in which Congress does not increase it, it effectively decreases. To be worth what it was 30 years ago, the minimum wage would now need to be about $8. Not only can our economy, with its vastly increased productivity, afford to pay $6.45, but with the increases in consumer spending that would result, it can hardly afford not to.

These measures will do more for our entire economy, as well as for the well being of our least well-off and the stability of our low-income neighborhoods than would new tax breaks for corporations and billionaires. If there are tax cuts, these should go to those who did not benefit from the rebates earlier this year. Those rebates and also the child tax credit should be extended to all Americans.

We are in a situation in which concern for our social safety net and a desire to jumpstart the entire economy both demand the same sort of action. The American public understands this and expects its government to act accordingly. CP

Maud Hurd is the national president of ACORN.

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