Nobel prize winner Joe Stieglitz recently called for a second stimulus to reduce unemployment and get the economy working well again. But the Administration seems uninterested in pushing the idea or making it an issue in the election, because it has been unsuccessful in setting the necessary frame for persuading the public that its first inadequate stimulus was only a political compromise that has done some good, but left much more yet to do. Yet we badly need that second stimulus, and if the Democrats could get their act together, get people back to work this month, and were willing to get rid of the filibuster in the Senate, we could have it quickly, and they probably could even avoid catastrophic losses in November.
I don’t expect the Democrats to do that however. It seems like they’d rather berate their base, play guilt and fear cards, and make generalized promises than show working people they represent them by actually performing and producing good results. A second stimulus would be the centerpiece in a bailout program for working people. I think that stimulus program should incorporate the three elements in Warren Mosler’s plan for ending the recession: a payroll tax holiday for employers and employees; a $500 per person revenue sharing program to prevent job cuts at the State level; and finally the most important element in it, a Federal Job Guarantee (FJG) for all who want to work.
The FJG would be a permanent automatic stabilizer added to the safety net. In good times its rolls would be very thin and its expenditures low; during recessions they would both grow and provide a floor of aggregate demand, as well as a way for people to remain in the work force and add to their work experience and their skills. FJG jobs would have full fringe benefits including two weeks of vacation annually, and Medicare insurance coverage.
I’d add a number of elements to Warren Mosler’s program. First, I’d reduce the standard work week to 35 hours, while raising the minimum wage, to $10 per hour, a rate that would also apply to the FJG. Second, I’d freeze all mortgage foreclosures in the United States, until the current problems with proper documentation and right to foreclose can be resolved. This would put a lot of money into the pockets of people who haven’t been able to make their payments. For some it would result in their eventually getting legal title to their homes. For the big banks it would result initially in further devaluing of their real estate holdings and might cause them to seek another Federal bailout. I would not provide it. But, instead, would take them into resolution, and not spin them off to private capital again until the toxic assets were cleaned off their books, and the loan funds were flowing to consumers and small businesses.
Third, the Democrats should immediately pass legislation to limit credit card interest rates to a maximum of 6% above the prime rate. In giving the credit card companies nine months before the law was implemented to prepare for it, their credit card reform bill invited the companies to raise interest rates on consumer credit cards by 50% or more before the law went into effect. That is, the bill bailed out the banks and increased the burden on consumers. Placing a limit on interest rates, accompanied by a non-usurious profit margin for the companies, would immediately change the narrative about bailouts, and also make credit much more affordable for consumers. More importantly, it would drive sales of consumer goods and also create jobs.
So that’s my program. The whiny and feckless Democrats won’t implement it or anything like it, but if they did before the election, they could minimize their House losses, and be sure of retaining the Senate. A political party that has lost the courage to grasp its own historic identity is a political party that doesn’t deserve to exist. That’s the case with the Democrats today, and if things keep going as they have been, they may just split down the middle by 2012.