Main Street Gets the Short Stick
Tuesday, October 07, 2008 at 8:20 pm
Late last month, as Congress was on its way to passing the $700-billion Wall Street bailout plan, another economic stimulus measure died a quiet death in the Senate.
That $58-billion proposal would have extended unemployment benefits, pumped billions of dollars into local infrastructure projects and increased funding for low-income nutrition and health-care programs. In other words, rather than bailing out Wall Street, this bill helped Main Street.
It didn’t survive long. Just hours after the legislation passed the House, Republicans killed it in the Senate. Now, many economists, health-care advocates and low-income advocacy groups say, while the larger bailout was probably needed to address frozen credit markets, it will do little to ease the immediate pinch on the country’s most vulnerable folks. That hole, which the stimulus plan would have helped to plug, remains.
“Bailing out Wall Street’s bad debts when millions more Americans can’t pay their bills is like bailing out a rowboat springing more leaks while the ocean is rising,” Robert B. Reich, former Labor secretary under President Bill Clinton and now professor of public policy at the University of California, Berkeley, wrote last month for Talking Points Memo. “Unless Americans on Main Street have more money in their pockets, Wall Street’s bad debts will continue to rise.” Reich called for an extension in unemployment benefits and the passage of a stimulus bill to create jobs.
Congress, however, has made clear where its priorities rest. Despite its approval of the $700-billion Wall Street bailout — combined with an additional $110 billion in unpaid tax benefits — many members claimed the $58-billion Main Street stimulus was just too expensive. The Bush administration echoed that sentiment, vowing to veto the bill.
Nearly 20 years after President Ronald Reagan left office, trickle-down economics — the theory that further enriching the wealthiest folks in the country will (eventually) save us all — won the day.
It wasn’t the only example in recent weeks. Late last month, Congress passed another industry bailout, offering $25 billion in federal loans to the nation’s ailing automakers. The loans almost exclusively benefit the Big Three — Ford, General Motors and Chrysler — who have lost the farm betting on gas-slurping SUVs. Ostensibly, the funding will help the automakers develop more fuel-efficient engines, but it remains up to the Energy Dept. to set those requirements.
Michigan’s congressional delegation has been quick to claim that the funding is necessary to protect local jobs. “This isn’t a bailout,” Sen. Debbie Stabenow (D-Mich.) told Fox News last month. “We’ve been working on this for some time. The timing on this is very unfortunate.”
But some environmentalists disagree, arguing that there should be some benefit to the taxpayer for bailing out the industry. Daniel Becker, a former Sierra Club official who is now director of the Safe Climate Campaign, offered one suggestion: force the beneficiaries to increase their fuel efficiency standards to 40 miles-per-gallon by 2015. “We shouldn’t be doing this,” Becker said, “unless they’re going to change their ways.”
Perhaps the trends aren’t surprising, the catering to automakers above environmentalists; the bailing out of investment banks instead of troubled homeowners. In terms of lobbying dollars, the industries, after all, hold an enormous advantage.
If Americans have learned no other lesson in recent weeks, at least we now know that our individual financial health hinges directly on that of a few big banks in New York — a reality clarified by Federal Reserve Chairman Ben Bernanke as he testified before Congress last month.
“People are saying, ‘Wall Street — what has that got to do with me?’” Bernanke said. “Unfortunately, it has a lot to do with them. It will affect their company. It will affect their job. It will affect their economy that affects their own lives, affects their ability to borrow and to save and to save for retirement and so on.”
As if on cue, the Congressional Budget Office estimated Tuesday that Americans have lost $2 trillion in retirement savings in the past 15 months.
Still, many observers point to the importance of having an economic stimulus bill — a second stimulus bill, for the first has come and gone — on top of the Wall Street bailout. The House-passed proposal would increase funding for homeless kids, food stamps and state Medicaid programs — the very programs that get squeezed in difficult financial times.
Budget hawks argue that the country can little afford adding to deficits. “At some point we have to put the some breaks on the Treasury,” said Steve Ellis, vice president of Taxpayers for Common Sense, a budget watchdog group.
Jagadeesh Gokhale, an economist at the libertarian Cato Institute, agreed, arguing that spending increases showered on social programs during recessions almost never revert to lower levels during booms. “If we pass a liberalization of the enrollment rules today,” Gokhale said, “they will become entrenched.”
Yet without the stimulus, some advocates say, the costs would be even steeper. “States will begin very serious discussions about cutting health care,” said Bruce Lesley, president of First Focus, a child-welfare group. “The uninsured rate could skyrocket.”
On Tuesday, the Center on Budget and Policy Priorities, or CBPP, a liberal policy analysis group, issued a report revealing that the weak economy — not the credit crunch — remains the most significant obstacle as states struggle to provide basic services under ever-tightening budgets. Increases in joblessness lead not only to the heightened need for public services, the report points out, but also to decreased revenues. The squeeze comes from both sides.
The Wall Street bailout, said Chad Stone, chief economist at CBPP, “in no way obviates the need for fiscal stimulus. They should have done both.”
There might yet be time. The Senate is scheduled to return to Washington on Nov. 17, leaving one last opportunity to tackle the House-passed stimulus bill this year.
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