There has been little good news in recent months on the economic front. The financial sector has melted down, leading to a volatile stock market and bankruptcies of some of the oldest and largest firms in the industry. Home foreclosures are at an all-time high (which contributed to the financial sector meltdown), state budget coffers are empty and consumers are closing their wallets, keeping their cash in their pockets.
A federal government report on third-quarter consumer spending offered a rather bleak picture of the state of the economy. According to the New York Times, the October report “showed that the economy contracted in the third quarter as consumer spending dipped for the first time in 17 years.”
The falloff, according to economists quoted by the paper, is likely an indication that the coming months will be tough and that the “impacts of a now-global financial crisis are continuing to squeeze companies and impede investment, prompting more layoffs and another wave of austerity.”
Driving the economic retreat, according to the report, was consumer spending, “which makes up more than 70% of American economy activity” and experienced its “largest three-month drop since the second quarter of 1980.”
Floyd Norris, chief financial correspondent of the New York Times and the International Herald Tribune, commented on the report in his blog, saying that “Consumers are clearly in retreat, and the economy is suffering,” with the nation’s gross domestic product increasing by its lowest amount for “any four-quarter period since 2001.”
As bad as things look, however, a partial solution may be buried deep in the numbers. Norris wrote that government spending kept the “overall quarterly decline ... small” because it “added 1.1 percent to the growth rate.” Other factors—nonresidential construction and net exports—also helped, but neither is expected to keep up.
Government spending appears to be the key to keeping us from falling from a deep recession into a depression, but it will take a massive infusion of cash into state and local budgets, along with federal spending to jump start things.
That’s the point Govs. Jon Corzine (N.J.) and David Paterson (N.Y.) made during testimony in Washington recently. The Democratic governors told separate congressional committees that “state governments will face devastating cutbacks if they do not receive assistance” from the federal government in the form of expanded Medicaid payments, direct aid and transportation money.
States already were reeling from cutbacks in federal spending—USA Today reported in October that states have been facing deficits caused by shrinking revenue and aid and that the recession was “forcing states to scale back safety-net health-coverage programs—even as they brace for more residents who will need help paying for care.”
States also have allowed their infrastructure to atrophy—the levees in New Orleans and the Route 35 bridge in Minnesota are only the most spectacular and horrifying examples of this negligence—due to a lack of cash.
The fact is that funneling money to the states for infrastructure projects, healthcare and education creates jobs, saves existing jobs and helps improve quality of life. That’s where we should be focusing our money right now—not on a quagmire of a war or on bailing out rich bankers.
“The federal government ignores state and local governments at serious peril,” Gov. Corzine told Congress (according to the New York Times).
The type of legislation that is needed would probably cost hundreds of billions of dollars, which may give some pause and could derail such a program. Gov. Paterson, however, thinks that would be a mistake.
“I firmly believe that if it took only two weeks for the federal government to find $700 billion to bail out Wall Street and bank executives,” he wrote to Congress (according to the Times), “then we ought to be able to find a fraction of that amount to help preserve essential services at the state level.”
What the governors of New York and New Jersey—and several other states—are talking about is a rebirth of the New Deal, injecting public money into road and bridge repairs, mass-transit expansion, new schools and libraries, broadband installation in areas not currently served and investments in green technologies. All of these things cost money, but all of them also put people to work and some will create new industries that will serve the nation well into the future.
These are not programs that President George W. Bush will make a priority in his final two months in office. But they appear to be programs that Barack Obama, the president elect, view as priorities.
Hank Kalet is a poet and managing editor of the South Brunswick Post and The Cranbury Press. E-mail grassroots@pacpub.com. See his blog, Channel Surfing, at www.kaletblog.com.
From The Progressive Populist, December 1, 2008
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