Posted:
February 1, 2008
Editor’s note: This story by James Parks is excerpted from a Jan. 31 post on the AFL-CIO weblog.
Even as the Senate takes up the $150 billion House-passed
economic stimulus bill, a leading economist says much more will be needed to
address the fundamental problems of the U.S. economy.
Robert Kuttner, author of Squandering
of America, says:
“The weak dollar, the risk of rising inflation, the
reality of global warming and the need to pull the economy out of the most
serious credit crisis since the 1930s will take the kind of activist government
not seen in 40 years. To reverse the 30-year trend of increasing
inequality and insecurity, and to repair the deep damage to the financial
system, Roosevelt-scale remedies and Roosevelt-style ideological clarity will
be required: serious public regulation and serious public outlay.”
Kuttner argues the economic stimulus package working its
way through Congress and the Federal Reserve’s cuts in interest rates are not
enough to reform and revive the economy for the long term. One way to do this,
he says, is to revamp the housing market, because home ownership is the
cornerstone of the nation’s middle class.
“Instead of debating the finer points of a ‘stimulus’
package, or the Fed’s next rate cut, Congress and the White House should get
together to rescue the housing sector. Home equity represents the greatest part
of the net worth of the American middle class,” says Kuttner.
“At present rates of decline in housing values,
homeowners will lose more than $2 trillion in home equity this year alone. That
loss will deepen the recession, because consumers will spend less money on
durable goods, home improvements and other purchases.”
Kuttner says the nation needs a 21st century Home Owners
Loan Corporation (HOLC), patterned after the New Deal program created when the
nation last faced mass mortgage foreclosures. The original HOLC issued
tax-exempt bonds and used the proceeds to refinance distressed mortgages at low
rates.
The AFL-CIO has proposed several short- and long-term
solutions to the nation’s economic problems, with long-term proposals including effective
regulation of our housing and financial markets. Other proposals include
enacting fiscal and monetary policies to promote full employment, fixing
flawed trade policies, investing in high-paying green-technology jobs, fixing
our broken labor laws and ensuring affordable health care and retirement
security.
Underlying the nation’s long-term economic weakness is
wage stagnation, AFL-CIO President John Sweeney said in a letter to House
Speaker Nancy Pelosi and Senate Majority Leader Harry Reid:
“Wage stagnation, which began in the 1970s, has led to
longer working hours, higher consumer debt and increasing reliance on home
equities. But today, home values are plummeting, home foreclosures are on the
rise and consumer debt is reaching unsustainable levels…”