Economic Policy That's More Than a Political Quick Fix
THE American economy is in serious trouble. The recession has brought into stark relief many of the problems built up over more than a decade of economic mismanagement. After ignoring the recession for a year, the Bush administration has come forth with proposals that solve neither the short-run problem of recession nor the long-term deterioration in our economic fundamentals. Without a significant change in course, the American economy appears headed for a future of slow growth and diminished opportunit y.
The most recent cyclical indicators demonstrate the tenacity of the current recession. The unemployment rate in February rose to 7.3 percent, representing 9.2 million unemployed workers, the highest level during the recession. Another 1.1 million people have grown so discouraged about the labor market they have given up looking for work. In addition, 6.5 million people who want full-time work can find only part-time jobs. The Labor Department calculates that if the discouraged workers and involuntary par t-time workers (counted one-half) are included in the unemployment rate, that rate for February would be 10.9 percent.
The number of long-term unemployed - those out of work for 27 weeks or longer - rose to 1.7 million in February, more than two-and-a-half times the long-term unemployed at the beginning of the recession. We know more job losses are coming, since many large firms such as GM, IBM, and Bethlehem Steel have announced large permanent staff cuts.
Even those with steady jobs find it harder to make ends meet. Real per capita after-tax income is lower today than it was at the end of 1988. This is the first three-year period since the Great Depression in which real income has fallen. It is hardly surprising that consumer confidence is near an all-time low.
Unfortunately, the president's proposals are not adequate to the challenge. They indicate that he is still underestimating the severity of both our short- and long-term economic problems.
The president's Economic Report predicts that the economy will grow by 2.2 percent in 1991 if the president's plan is adopted. Without the president's proposals, the administration predicts the economy will still grow at 1.6 percent. Thus, the program the administration has submitted would, by its own calculations, add only six-tenths of a percentage point to economic growth this year. It is predicted to have about the same impact annually, half a point, through 1997.
The growth forecasted by the administration is far weaker than the nation has ever experienced after a recession. In previous recoveries since 1959, the earliest year for which gross domestic product data are available, growth averaged 5.4 percent.
Nor does the administration hold out much hope for the jobless. The report projects that it will be 1997 before the unemployment rate will get back to 5.3 percent, where it was just before this recession began.
Earlier this year Sen. Jim Sasser (D) of Tennessee, chairman of the Senate Budget Committee, and I put forward a comprehensive program for recovery and growth, both to move the economy out of the recession and to improve long-term the overall level of growth, investment, and the real incomes of working people. Among other things, the program calls for countercyclical stimulus through an emergency package of temporary assistance to state and local governments designed to keep and create jobs and to preven t destructive cuts in education, infrastructure, and public-safety programs. Currently these governments are contracting, thereby putting a downward push on an economy trying to get back on its feet and contributing to the downward spiral of the national economy.
Our recovery plan also calls for more expansionary monetary policy and more active international economic diplomacy in support of global growth. It also includes an easing of the tax burden on the middle class.
In addition to these short-term recovery measures, we called for a fundamental rearrangement of budget priorities to emphasize investment in America. We believe it's possible to shift substantial resources from the military budget to fund a Marshall Plan for America: public investment on programs that expand our country's capacity to produce and compete, including infrastructure, education, and research and development.
Our major trading partners, with whom we compete, have been investing a higher percentage of GDP than we do in such programs and have enjoyed higher rates of productivity growth, which is the key to rising wages. Potential reductions in military spending are anticipated to be large enough to fund not only new investments in America but also to reduce the federal deficit.
Dramatic changes in the international scene make this change of course in economic policy possible; our nation's plight makes such change imperative.