House Speaker Nancy Pelosi (D-Calif.) said Friday that if Congress fails to reauthorize extended unemployment benefits and other domestic aid programs, the economy could head for a double-dip recession.
"If we really don't address this in a very serious way, we could slip back and have another recession, and if we do it's harder to come back," said Pelosi.
A bill containing the benefits failed for the third time in a Senate vote on Thursday. So far, 1.2 million people out of work for longer than six months have found themselves ineligible for checks they would have received had they been laid off closer to the beginning of the recession, when the stimulus bill was put in place.
Pelosi told HuffPost Friday that to meet the demands of deficit hawks, Democrats might agree to offset the cost of the spending. She didn't offer specifics.
"It really has to happen," said Pelosi of reauthorizing extended benefits. "One of the debates that goes on now -- which I completely resist, but it's one of the debates going on -- is at the end of the day, these people have to have their benefits, and should we begin paying for unemployment benefits?"
The domestic aid package, known as the "tax extenders" bill, also includes tax breaks and aid to states. To appease conservative Democrats concerned about the bill's deficit spending, party leaders in the House and Senate have whittled away at the bill, eventually reducing the 10-year deficit impact from $134 billion to just $33 billion in the Senate version. That remaining chunk represents the cost of reauthorizing the extended unemployment benefits through November.
While Republicans and conservative Democrats like Sen. Ben Nelson (D-Neb.) have insisted that the entire bill be offset, Pelosi and Senate Majority Leader Harry Reid (D-Nev.) have refused to cave so far. Historically, extended unemployment benefits in times of high unemployment are always classified as "emergency" spending and are not offset.
"It's a completely bad idea because the stimulative effect that you get from putting money down is all set on either reducing something else or raising taxes," said Pelosi. "So the double purpose of it, which is to reduce the needs of the unemployed and the stimulative effect, are canceled out."
The currently-lapsed program of extended benefits gives the unemployed up to 99 weeks of benefits in some states, more than has ever been made available -- and even some Democrats are growing wary of the duration.
"We've had four straight months of job growth," said Rep. Jason Altmire (D-Pa.) after the House approved its version of the bill in May. "At some point you have to take a step back and look at the relative value of unemployment benefits versus people looking for jobs."
And in the Senate, Dianne Feinstein (D-Calif.), a supporter of reauthorizing extended benefits, said last week that the deficit is becoming an overriding concern.
"We have 99 weeks of unemployment insurance now. The question comes, how long do you continue that before people just don't go back to work at all?" she said. "Unemployment insurance has never carried the heavy weight that it does right now, the cost that it does right now, so people are concerned. And there isn't a lot of documentation on this. Last night for the first time I had somebody from a company tell me they've offered jobs to individuals and they said well, 'I want to not come back to work until my unemployment insurance runs out.' So we need to start looking at these things. And, we need to start paying for it."
Pelosi said she would be bringing Mark Zandi, chief economist for Moody's Economy.com and a former adviser to Sen. John McCain (R-Ariz.), to the Hill next week. Zandi has said before that it's more important to nurture the economic recovery than to address the deficit by nickel-and-diming the unemployed: "It would be counterproductive to try and offset it this year or the next."
The current lapse in extended benefits is unprecedented: Data compiled by the National Employment Law Project show that since 1959, the government has never allowed extended unemployment benefits to expire when the national unemployment rate is still above 7.2 percent. The current rate stands at 9.7 percent.
"My perspective on this is that in early 2008 President Bush and the Democratic Congress legislated a stimulus when the unemployment rate was 5 percent," said Larry Mishel, president of the progressive Economic Policy Institute. "Now we're near 10 percent unemployment and people are doing nothing. The criteria for what is a problem has been skewed."