More than half of all Republicans in the House and nearly half in the Senate happily took credit in their home districts for the stimulus money they voted against.

As of the end of August 2010, $289.4 billon has been paid out to the states.  Many Americans think that at least half the money has been wasted.  Economists have a higher opinion, but no one thinks it is a home run. 

The big concern of Americans is the high unemployment numbers.  We seem stuck in the 9.5% range, but what people don’t realize is that every year, 1.8 million new workers enter the Civilian work force, and just filling these jobs leaves the unemployment rate stuck.  

Many agree the stimulus bill has created jobs.  Economists say it has generated salaries for as many as 2 million workers who would have been out of work without the stimulus, and the government on Recovery.gov points to nearly 750,000 jobs funded by the bill. 

The nonpartisan Congressional Budget Office calculated that the stimulus package saved or created between 900,000 and 2.3 million jobs.

Although the Republicans point to tremendous job losses, it would have been 2 million jobs worse without the stimulus that they voted against as a bloc.

These paychecks, in addition to unemployment benefit extensions and tax cuts have all done their part to advance the economy.  But with only about 35% of the stimulus money spent, it is difficult to say whether it will work or not.

Before the stimulus bill was passed, unemployment insurance was cut off at 26 weeks.  After that time, unemployed workers were dropped from the Civilian labor force unless they had looked for work in the previous 4 weeks.  If they said they had looked for work in the last 12 months, they were considered marginally attached to the labor force.  As of the end of August 2010, there were 2.37 million workers in that category.  Within the marginally attached workers, were 1.1 million discouraged workers, who are no longer looking for work.   

The stimulus bill extends unemployment benefits to 33 weeks, and raised the government payment by $25 per worker per week.  Under the stimulus bill, the government also provides 65% of health insurance cost for the workers for up to 9 months after separation.  This provides much of the employer cost portion that ceased when their jobs were terminated. 

Economists have long expressed that unemployment benefits are a core motivation for economic stimulus by giving people some small discretionary income.  One of the possible side effects is that the financial “cushion” encourages workers to spend their efforts to find an “ideal” job rather than the first one that comes their way. 

In another job-saving effort, stimulus money has been sent directly to states and local governments to help them balance their budgets and avoid mass layoffs of teachers, police officers and firefighters, since states are restricted from deficit budgets. 

Instead of deficits, states and local governments raise cash through the sale of municipal bonds.  During the recent financial crisis, the bond market froze, forcing the municipal issuers to face big budget cuts and cancel programs.  Under the Build America Bonds program, the federal government subsidizes bond payments made to investors, raising the yield to very attractive rates, stimulating the economy and lowering the municipality’s borrowing costs. 

Close to half of the stimulus funded jobs are those that keep states and local governments running.  Those salaries provide money that families can spend into the economy.  

To encourage home sales in an economic sector that was at the heart of the financial meltdown, first-time homebuyers were offered an $8,000 tax credit until the end of November 2009. 

Although home sales rose during much of 2009, as soon as the tax credit expired, home sales plummeted.  The analysis was that people who would have purchased a home anyway moved up their purchase date to take advantage of the tax credit.

There are huge numbers of programs being funded simultaneously in the stimulus bill.  Many of the programs are slow to mature and show benefits.  These are investments in the country’s future rather than a stimulus. 

The stimulus bill provided $100 million for improving and repairing infrastructure items like roads and bridges sorely needing those repairs.  It would also put people to work.  This was the image of the stimulus presented to Americans, and it stuck.  It was, however, a proverbial “drop in the bucket.” 

Although money was allocated for “shovel ready” building projects, there weren’t that many projects ready to go, and a lot of the money has not yet been spent.  The reason?  States are planning and proceeding carefully, trying to get the best value for the money they receive. 

On Labor Day 2010, the president proposed allocating $50 billion to repair 150,000 miles of roads, 4,000 miles of rail lines, and 150 miles of airport runways.  These are expected to create jobs immediately as well as invest in easier transportation of goods and people for the future.  Congressional approval is needed.

The president also intends to urge Congress to permanently extend a research and development tax credit that expired in 2009, and allow companies to write off all of their investments in plants and equipment through the end of 2011. 

Other investments already in the stimulus bill are $40 billion for upgrading the nation’s energy grid.  That should come in handy as solar activity peaks in the next five years and can potentially burn out electrical grids and satellites.  This program will provide many jobs but is still in the early planning stages. 

Another investment drive is green technology, meant to minimize our dependence on foreign oil and minimize potential threats from the Middle East.  The problem is that green technology is still in its infancy; it will provide jobs, but maybe for our children.  It is an investment, not a stimulus. 

With the midterm elections coming up on November 2, and historical evidence that impatient voters will try something new and vote out the “ins”, the president and his council are scrambling for something that will get the notice of American voters.  It is not enough that this president has passed massive reform legislation that will alter the future of this country and its citizens for the better.  When American voters get in that booth, they ask, “What have you done for me lately?”  If nothing comes to mind, they’ll vote for promises. 

The $850 billion will do a lot of good rebuilding America’s future, but the voters need jobs today, and jobs in sufficient quantities are not in view.  The problem is that many stimulus benefits are far into the future. 

Dinner for the family is needed tonight. 

Employer tax breaks follow the “trickle-down” economic theory that says tax breaks given to employers will allow them to save enough money to hire more people who in turn will spend their income on retail goods that will improve the economy and lead to more jobs.  It does not work in a wealth-driven society like ours, but instead causes an ever-larger wealth gap between the “haves” and the “have-n0ts”.  

Tax breaks fall on deaf ears, when an employer is worried whether his goods will sell today and provide a tomorrow for his company and his family.  He will conserve his cash and restrict production in case of a downturn, and therefore unintentionally causing a downturn.  The cash stays with the employer and improves his profit.

The opposite of trickle-down economics is the “trickle-up effect.”  This approach give the tax breaks to the people.  They have more money left over from supplying their basic needs and with their disposable income they stimulate retail trade by buying goods that will improve the economy and lead to more jobs.  

The key to recovery is stimulating retail.  The only way to do it is to put more cash in the wallets of consumers.  An economy runs on cash circulation; as with people, stop the circulation and the patient dies.  

The modification of the Bush tax breaks proposed by the president is a step in the right direction.  By continuing the tax breaks for those earning less than $250,000, it will not cut off their disposable income. 

What the country also needs is an employment incentive; the opportunity for the unemployed to perform work and feel accomplished. 

There is still a lot of money to be spent and a lot of people unemployed.

What if unemployed workers were offered the education they needed to work at a trade, or get their high school diploma?  It is a fact that unemployment is twice as high for those without a high school education.  It is a fact that graduates in fast growing fields like health care and technology are hired much faster than those unskilled. 

What if unemployed workers were encouraged to volunteer as part of their workweek?  People generally don’t like to be charity recipients.  We live in a fair trade society – when we receive something, we have been taught to feel we should give something in return. 

What if?

President Franklin Roosevelt in 1935 had the right idea, employing thousands in public service under the Public Works of Art Project (PWAP), Federal One and others. 

Writers, artists, musicians and other unemployed workers wrote, painted and performed for the depressed public and were paid.  They brought the country’s records up to date by recording and cataloging historical information; they worked on building projects; they repaired bridges and roads; they painted murals in public buildings.  If they had a skill, they used it and taught it to others; if they had no skill, they used their muscles.   The PWAP program failed because of mandated “guidance” from Washington D.C. and the unemployment problem was solved with the outbreak of WWII, but the idea is still compelling. 

There are many opportunities to volunteer in our own backyards.  Every town has Habitat for humanity, food pantries, libraries and other organizations always looking for help.  The requirements are generally simple; just show up and work “friendly.”  It also looks good on a resume. 

What if we suggest a scenario and make an assumption that many business owners need the help, but don’t have the money to hire new employees.  What if they put out a call to the local unemployment office describing their needs? 

What if the issue of salary and benefits never came up – they would be provided by the state unemployment agency.  Perhaps during their “unemployment” employment, the worker would learn a new skill, something of value to put on their resume.  Perhaps their “unemployment” employer would see the value of hiring that person, or provide a glowing reference to their next interview. 

What if?

By admission and by action, Republicans are delaying any Congressional movement they can, because it means to some extent, destroying or eroding any accomplishments by Democrats.  Republicans are heavily lobbied and their campaigns heavily supplied by big business interests, and that is whom they obey.   

Republicans vote as they are told.

Congress’s approval rating is at a staggering low of 19% (July 16, 2010).

~~~~~

July 19, 2010: Lawmakers battled for weeks over extending unemployment benefits to workers who have been unemployed for more than six months. The previous extension expired on June 2, leaving about 2.5 million people without benefits.

The House had passed a bill extending their benefits through November 2010.  However, with the recent death of Sen. Robert Byrd, Senate Democrats didn’t have the 60 votes they needed to overcome a Republican filibuster.

President Obama said lawmakers’ obligation to extend benefits is both moral and practical, citing some economists who believe extending unemployment insurance is one of the most cost-effective ways to jump-start the economy because it puts money in the pockets of people who are likely to spend it quickly.

The $34 billion needed to extend benefits would be borrowed, adding to the nation’s mounting debt. Republicans said they would only support extending benefits if the bill were paid for. 

Republicans have tuned into the issue of voter’s concern over debt and deficit and are looking to gain favor with them in the upcoming election. 

Republican leaders say they’re happy to vote, as long as they get a chance to change the bill to their liking.

This is an example of how Republicans are simply against anything proposed by Democrats.  In issues past, Republicans have often said they would rather increase debt than taxes.  With this issue, they are changing again, just to slow any Democratic progress.

~~~~~

July 22, 2010:  Update. 

President Obama signed into law today a restoration of benefits for people who have been out of work for 26 weeks or more after Congress approved the measure earlier in the day. 

The lump-sum retroactive payments will be delivered in the next week or two to state-issued debit cards or beneficiary bank accounts.

The Senate approved the bill on July 21 after Democrats agreed to break off the unemployment benefits from a larger jobs bill targeting $24 billion to help state governments slow layoffs and cut taxes, and provide a health insurance subsidy for the unemployed. 

After it became a standalone bill, the unemployment benefits enlisted support from Republican Maine moderates Susan Collins and Olympia Snowe.  The 60^th vote was cast by Senator Robert Byrd’s replacement, Carte Goodwin (R-WV). 

All Republican Senators except the two Maine moderates voted against the unemployment benefits again as a unified bloc. 

Less than a day later, the unemployment benefits bill was sent to the House where it was passed 272-152 with the help of 31 Republicans crossing party lines and sent to the president for his signature. 

Earlier this year, Republicans twice allowed temporary unemployment measures to pass without asking for a roll call vote, but debt and deficits are becoming issues with voters, and Republicans looking for reelection are looking to win favor with them. 

After signing the bill into law, the president said in a statement, “Americans who are fighting to find a good job and support their families will finally get the support they need to get back on their feet during these tough economic times.”   

A professor of economics and co-director of the Political Economy Research Institute at the University of Massachusetts, is co-author of Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy.

This article (written November 6, 2008) appeared in the November 24, 2008 edition of The Nation.

Ed.Note: This article was interesting because it contains many of the points of the Obama Recovery Stimulus of 2009.  The article was slightly reformatted without omission or distortion of meaning to read easier online. 

Bolded passages are of particular interest; italic notes are my notes added for clarity.

A Green Public-Investment Stimulus

Recessions create widespread human suffering. Minimizing the suffering has to be the top priority in fighting the recession. This means expanding unemployment benefits and food stamps to counteract the income losses of unemployed workers and the poor. By stabilizing the pocketbooks of distressed households, these measures also help people pay their mortgages and pump money into consumer markets.

Beyond this, the stimulus program should be designed to meet three additional criteria.

1.      We have to generate the largest possible employment boost for a given level of new government spending.
2.      The spending targets should be in areas that strengthen the economy in the long run, not just through a short-term money injection.
3.      Despite the recession, we do not have the luxury of delaying the fight against global warming.

To further all these goals we need a green public-investment stimulus to
1.      defend state-level health and education projects against budget cuts
2.      finance long-delayed upgrades for our roads, bridges, railroads and water management systems
3.      underwrite investments in energy efficiency-including  building retrofits and public transportation-as well as new wind, solar, geothermal and biomass technologies.

This kind of stimulus would generate many more jobs–18 per $1 million in spending – than  would programs to increase spending on the military and the oil industry (i.e., new military surges in Iraq or Afghanistan combined with “Drill, baby, drill”), which would generate only about 7.5 jobs for every $1 million spent.

There are two reasons for the green program’s advantage.

1.      The first factor is higher “labor intensity” of spending-that  is, more money is being spent on hiring people and less on machines, supplies and consuming energy. This becomes obvious if we imagine hiring teachers, nurses and bus drivers versus drilling for oil off the coasts of Florida, California and Alaska.

2.      The second factor is the “domestic content” of spending-how much money is staying within the US economy, as opposed to buying imports or spending abroad. When we build a bridge in Minneapolis, upgrade the levee system in New Orleans or retrofit public buildings and private homes to raise their energy efficiency, virtually every dollar is spent within our economy. By contrast, only 80 cents of every dollar spent in the oil industry remains in the United States. The figure is still lower with the military budget.

What about another round of across-the-board tax rebates, such as the program the Bush administration and the Democratic Congress implemented in April?

A case could be made for this in light of the financial stresses middle-class families are facing. However, even if we assume that the middle-class households will spend all the money refunded to them, the net increase in employment will be about 14 jobs per $1 million spent-about  20 percent less than the green public-investment program (the main reason for this weaker impact is the lower domestic content of average household consumption, i.e. much of the consumption will be for foreign-made goods).

Also, it isn’t likely that the households would spend all their rebate money. Just as with April’s rebate program, households would channel a large share of the money into paying off debts. (paying off debts is not necessarily bad – it releases discretionary income for the family and increases reserves for the banks and credit card companies to extend more credit to others).

The Matter of Size

This is no time to be timid. The stimulus program last April totaled $150 billion, including $100 billion in household rebates and the rest in business tax breaks. This initiative did encourage some job growth, though as we have seen, the impact would have been larger had the same money been channeled toward a green public-investment stimulus.

But any job benefits were negated by the countervailing (counteracting) forces of the collapsed housing bubble, the financial crisis and the spike in oil prices. The resulting recession is now before us. This argues for a significantly larger stimulus than the one enacted in April.

But how much larger?

One way to approach the question is to consider the last time the economy faced a recession of similar severity, which was in 1980-82, during Ronald Reagan’s first term as president. In 1982 gross domestic product (GDP) contracted by 1.9 percent, the most severe one-year drop in GDP since World War II. Unemployment rose to 9.7 percent that year, which was, again, the highest figure since the ’30s.

The Reagan administration responded with a massive stimulus program, even though its alleged free-market devotees never acknowledged as much. They preferred calling their program of military expansion and tax cuts for the rich “supply-side economics.” (supply creates demand – see Trickle, Trickle, Up, Down, part I)

Whatever the label, this combination generated an increase in the federal deficit of about two percentage points relative to the size of the economy at that time. In 1983 GDP rose sharply by 4.5 percent. In 1984 GDP growth accelerated to 7.2 percent, with Reagan declaring the return to “morning in America.” Unemployment fell back to 7.5 percent.

In today’s economy, an economic stimulus equivalent to the 1983 Reagan program would amount to about $300 billion in spending-roughly double the size of April’s stimulus program, though in line with the high-end figures being proposed in Congress. A stimulus of this size could create nearly 6 million jobs, offsetting the job-shedding forces of the recession.

Of course, the green public-investment stimulus will be much more effective as a jobs program than the Reagan agenda of militarism and upper-income tax cuts. This suggests that an initiative costing somewhat less than $300 billion could be adequate to fight the job losses. But because the green public-investment stimulus is also designed to produce long-term benefits to the economy, there is little danger that we would spend too much. Since all these investments are needed to fight global warming and improve overall productivity, the sooner we move forward, the better. Moreover, under today’s weak job market conditions, we will not run short of qualified workers.

How to Pay for All This?

Let’s add up the figures I have tossed around. These include the $700 billion bank rescue operation being engineered by the Treasury, the $540 billion with which Fed chair Bernanke has pledged to bail out the money market mutual funds, along with unspecified additional billions to buy unwanted business debts held by banks. On top of these, I am proposing $300 billion for a second fiscal stimulus beyond last April’s $150 billion program. At a certain point, it is fair to wonder whether we are still dealing with real dollars as opposed to Monopoly money.

In fact, the whole program remains within the realm of affordability, albeit approaching its upper bounds. But major adjustments from the current management approach are needed. In particular, the Federal Reserve has to continue exerting control over the Treasury on all bailout operations. That is, we need more initiatives like Bernanke’s $540 billion program to stabilize the money market mutual funds and less Treasury fumbling with taxpayers’ money to buy either the private banks’ bad assets or ownership shares in the banks.

We need to recognize openly what has largely been an unspoken fact about these bailout operations: that the Federal Reserve has the power to create dollars at will, while the Treasury finances its operations either through tax revenues or borrowed funds (which means using taxpayer money at some later time to pay back its debts with interest).

The Federal Reserve does not literally run printing presses when it decides to inject more money into the economy; but its normal activity of writing checks to private banks to buy the banks’ Treasury bonds amounts to the same thing.

When the banks receive their checks from the Fed, they have more cash on hand than they did before they sold their Treasury bonds to the Fed. Especially during crises, there is no reason for the Fed to restrain itself from making good use (though of course not overuse) of this dollar-creating power.

The Fed is also supposed to be the chief regulator of the financial system. Now is the time to make up for Alan Greenspan’s confessed failures over twenty years in this role.

In exchange for the Fed protecting the private financial institutions from collapse, Bernanke must insist that the banks begin lending money again to support productive investments, while prohibiting them from yet another return to high-rolling speculation.  

Special measures are also needed to keep people in their homes.

The Deficit Looms

When the economy began slowing this year, the fiscal deficit more than doubled, from $162 billion to $389 billion. We cannot know for certain how much the deficit will expand. It could rise to $800 billion, $1 trillion or even somewhat higher, depending on how the bailout operations are managed.  Of course, it would be utterly self-defeating for the United States to run a reckless fiscal policy, no matter how pressing the need to fight the financial crisis and recession.  But in the current crisis conditions, even a $1 trillion deficit need not be reckless.

Let’s return to the Reagan experience for perspective. In 1983 the Reagan deficits peaked at 6 percent of the economy’s GDP. With GDP now around $14.4 trillion, a $1 trillion deficit would represent about 7 percent of GDP, one percentage point higher than the 1983 figure.

Of course, the global financial system has undergone dramatic changes since the 1980s, so direct comparisons with the Reagan deficits are not entirely valid.

One change is that government debt is increasingly owned by foreign governments and private investors. This means that interest payments on that debt flow increasingly from the coffers of the Treasury to foreign owners of Treasury bonds.

At the same time, as one feature of the crisis, Treasury bonds are, and will remain for some time, the safest and most desirable financial instrument in the global financial system. US and foreign investors are clamoring to purchase Treasuries as opposed to buying stocks, bonds issued by private companies or derivatives.

This is pushing down the interest rates on Treasuries. For example, on October 15, 2007, a three-year Treasury bond paid out 4.25 percent in interest, whereas this past October 15, the interest payment had fallen to 1.9 percent (currently 1.125 percent). By contrast, a BAA (investment grade) corporate bond paid 6.6 percent in interest one year ago but has risen this year to 9 percent (currently 8.24 percent).

As long as the private financial markets remain gripped by instability and fear, the Treasury will be able to borrow at negligible interest rates. Because of this, allowing the deficit to rise even as high as 7 percent of GDP does not represent a burden on the Treasury greater than what accompanied the Reagan deficits.

There is, then, no reason to tread lightly in fighting the recession, with all its attendant dangers and misery. Indeed, severe misery and danger will certainly rise as long as timidity-the path of least resistance-establishes the boundaries of acceptable action.

The incoming Obama administration can take decisive steps now to defend people’s livelihoods and to reconstruct a viable financial system, productive infrastructure and job market on the foundation of a clean-energy economy.