Almost overnight, the conversation in Washington has moved from placing odds on a future recession to the likelihood that one is already here. In other words, the politicians and policy wonks have caught up with the bulk of Americans, who've seen this coming for months. Now the wrangling is over what to do about it.
President Bush and his Congressional allies are shamelessly using the occasion to push for an extension of tax cuts for the richest Americans beyond the year 2010. They must think no one is paying attention: It doesn't take a PhD to see that a tax cut in three years will do absolutely nothing to pull us out of this current mess.
What's needed is immediate action to keep average people working and consuming so that the entire economic machine doesn't freeze up, pulling the country into an ever-worsening spiral of joblessness and shrinking consumption. That's why you're hearing economists talk about a "timely and targeted" stimulus package that will quickly put money into the hands of people who will spend it. Beef up demand, and businesses will follow by raising output.
Solid proposals for doing so are already out there: The Economic Policy Institute, where I now work, issued a comprehensive plan on Friday (read it here). Former treasury official Lawrence Summers has a proposal, as do the three top Democratic presidential contenders (here, here and here). Details vary, but all call for pumping billions of dollars into the economy, starting within the next six months.
What's the urgency? Why not just wait and see what happens, as some have suggested?
Here's one good reason: An economic stimulus works best at the beginning of a recession, while there's still a functioning economy to work with. Since recessions are declared based on data that is already old, we don't know with absolute certainty that they've started until after the fact. By then, pessimism, even despair, has taken root, and the road back becomes much more difficult.
It's like fighting the flu: Ignore the early signs (rising unemployment, slumping retail sales, pessimistic projections from Wall Street), and you're likely to be in bed twice as long, with a fever.
If that's not reason enough, here's another: Most of the stimulus proposals, including EPI's, do more than simply push out money in the form of tax rebates. They extend unemployment benefits, or help avoid foreclosures, or subsidize heating oil through the winter. They speed up needed repairs to crumbling schools and bridges, jump-start investment in green energy programs, and help states deal with plummeting tax revenues without cutting essential services.
By another name, this kind of stimulus - which offers immediate protection to the most vulnerable while minimizing disruption to all Americans - might be called good government.
Sure, it will take a lot of federal money - more than $140 billion, or about 1% of GDP, in EPI's plan. But in the long run, that expense will be mitigated by tax revenues from jobs created or saved. More important, an immediate investment means the pain of the coming recession will almost certainly be less intense than it would be otherwise.
EPI Policy Director John Irons offers a third pragmatic reason for fast action: Less time for special-interest lobbyists. "Around here, a package like this is known as a Christmas tree," he tells me. "Everyone wants to hang something on it." Better to get the money out quickly to where it will do the most economic good, instead of weighing it down with political paybacks.