TPMCafé (Talking Points Memo), January 5, 2009
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The latest mutterings from Congress, especially the Republican leadership, indicate that they still don't have a clue about the seriousness of the economic downturn we are facing. They are saying that they can't have a stimulus package ready for when President Obama takes office in two weeks, and that a package probably won't be ready until well into February.
This delay is inexcusable. Remember when the Wall Street boys needed their TARP bailout in the fall? President Bush and his crew, together with the Democratic congressional leadership, with a huge chorus of media cheerleaders, all told us that the economy would collapse without immediate action. That is almost true now in the case of stimulus.
At this point, there should not be much question about the seriousness of the need for stimulus. The $8 trillion housing bubble that our economic leaders somehow could not see is in full collapse, with house prices falling at more than a 20 percent annual rate in the most recent data. The immediate impact of the collapse was to cut the housing sector in half.
More importantly, the lost housing wealth, combined with the loss of $8 trillion in stock market wealth, is causing consumption to plunge. We are going to see the largest set of bankruptcies and store closings in the retail sector ever. More than 10 percent of the workforce is employed in the retail sector. The layoffs will almost certainly top 1 million and could hit 2 million.
And, when those stores go out of business, they are not going to be sending their rent checks to shopping mall owners. The bubble in commercial real estate, which followed on the bubble in residential real estate, is also collapsing. Look for more surprised economists as hundreds of billons of bad loans on commercial properties suddenly appear on the banks' books in the next few months.
In addition, we have the cutbacks in state and local governments, all of whom are being squeezed by plunging tax revenues. Since these governments are generally forced to balance their budgets, they have no alternative to making cuts and/or raising taxes. This is exactly the worse course for the economy right now.
This is the area that Congress could most easily address right now. Both red states and blue states are subject to budget squeezes. There must be a package of aid to state and local governments that President Bush and the Democrats work on right now. President Obama can always add to such a package after he takes office.
This stimulus package should have been approved two months ago, but for whatever reason no action has been taken. As a result, we are seeing painful layoffs and cutbacks in state and local governments that are completely unnecessary.
There is no justification for further delay. Congress should immediately approve whatever assistance President Bush will agree to now, there is no reason that the public should be forced to wait until mid-February for Congress to pass the crisis.
If there is no interest in Congress today for serious action, perhaps the loss of more than 500,000 jobs that the Labor Department will report on Friday will help to focus its attention.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.