As we go to press, the country is in the midst of one of those disquieting and anxious in-between periods of the economic crisis. The financial system has taken a step back from the brink, but the collapse of Citigroup or UBS would likely push it over, inciting an acute panic. The Big Three automakers may explode, sending shrapnel throughout the economy and putting as many as 3 million people on the unemployment rolls. Then there's the steady stream of bad news we've endured since the subprime losses became clear in August of last year--massive write-downs, bank failures, slowing sales and 1.2 million lost jobs. Most disturbing, the rate of decline in consumer spending and payrolls is increasing.
What needs to be done is fairly clear. The dangerous bout of Hooverism that surfaced during the late stages of the election--a call for belt-tightening and balanced budgets--seems, thankfully, to have passed. As Barack Obama said on 60 Minutes, a broad consensus of economists--from Martin Feldstein on the right to James Galbraith on the left--agree that forestalling a historic economic disaster requires a massive and immediate injection of federal funds into the economy.
The economic team that Obama unveiled November 24--composed chiefly of Clinton retreads, centrist academics and respected technocrats--doesn't inspire tremendous confidence that the incoming administration fully understands the degree to which the old neoliberal model has been discredited. These appointments, especially Larry Summers to head the National Economic Council, and his protégé, Timothy Geithner, as Treasury secretary, should face tough scrutiny from Congress and the press about the role Clinton-era deregulation played in the current crisis (see William Greider, below). But it is the policy, not the personnel, that is most important. The early signs are that the policy is essentially sound. Obama has directed his economic team to put together a major jobs package that would "put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children and building wind farms and solar panels, fuel-efficient cars and the alternative energy technologies."
That's the good news. The bad news is that the economy is tanking so quickly we can't wait around until January 20, and a lame-duck government has essentially abdicated its role to Ben Bernanke's Fed and Hank Paulson's Treasury. But the Fed's attempts at monetary stimulus have lost almost all traction: long-term interest rates and the Fed funds rate are now moving in opposite directions.
We should expect no leadership from Bush and company at this point. But Congress can take steps now to hold the economy together and to move quickly toward a deeper stimulus package. Congress should reconvene after Thanksgiving to pass an immediate bridge loan for the auto industry and its workers to get them through to January, before debating a more comprehensive rescue package that transforms Detroit into a more viable, innovative, green industry (see Marissa Colón-Margolies, "How to Save Motor City," page 20).
The next Congress convenes a full two weeks before Obama takes the presidential oath, and it is vital that it pass a bold stimulus plan that Obama can sign on day one. The plan must not simply focus on stabilizing the stock market and spurring consumption; it must be oriented toward putting people to work through public investments that rebuild our country's infrastructure and expand the productive capacity of our economy. When the financial sector faced the precipice, Congress was able to hammer through $700 billion in a matter of days. The real economy deserves no less.