Nation Topics - Economic Policy | The Nation

Enron is Whitewater in spades.

It's been more than five years since Congress ended welfare as we knew it by passing the Personal Responsibility and Work Opportunity Reconciliation Act, over the objections of activists who warned of a large-scale social catastrophe once a recession came. Those dire predictions were dismissed as alarmist, and after four years, with welfare rolls down 50 percent, the law was declared a success. Now, with the economy in recession and unemployment spiking to 5.4 percent, the disaster is imminent, if not already upon us. Congress has begun to debate the reauthorization of the act, which expires next year, and this time, its critics are vowing not to go down without a serious fight.

Thanks to welfare "reform," this is the first recession since the 1930s in which we have virtually no safety net. Of the 415,000 jobs the economy shed in October, 111,000 were in the service industry--a sector dominated by the kinds of temporary, low-wage, low-skill jobs commonly portrayed as a stepping stone out of poverty for welfare moms. Only 40 percent of those tossed out of work collect unemployment insurance, an outrage the so-called stimulus package passed by the House does nothing to address. Of the rest, a disproportionate share are poor single mothers, who don't qualify because they have worked part time, left jobs as a result of childcare problems or recently come off welfare. (Before it was eviscerated, welfare functioned as a sort of unemployment insurance system for such women--offering the added benefit of stimulating a sluggish economy by steadying their purchasing power.) Immigrants who entered the country post-1996, comprising a growing share of the low-wage work force, are mostly ineligible for welfare and other benefits. Worst of all, in most states, poor families will be reaching their five-year welfare time limit over the next six months, just as the recession may be deepening.

It is against this ominous backdrop that the National Campaign for Jobs and Income Support, a coalition of grassroots groups, is partnering with organized labor, civil rights, women's and faith-based organizations to push for an overhaul of Temporary Assistance to Needy Families, the block grant that replaced the old system. Their "End Poverty: Make TANF Work!" campaign is asking Congress to stop the time-limits clock for families in compliance with welfare rules; expand education and training; create a decent public jobs program; restore benefits to immigrants; and insure that women never have to make a choice between their income and the well-being of their kids. Representative Patsy Mink of Hawaii has introduced a bill (soon to be followed by a companion bill in the Senate sponsored by Paul Wellstone) that includes many of these proposals.

In recent years, grassroots groups representing low-income women have made great strides at the local and state levels--winning increased welfare benefits, living-wage guarantees, healthcare for the uninsured, real job training and expanded childcare benefits. And they demonstrated some national strength this past spring, winning a partly refundable child tax credit in an otherwise feudal tax bill. Next year's battle over welfare will test their newfound unity. It's a fight many of their members simply cannot afford to lose.

This week, George W. Bush began peddling the "three legs" of his program to "restore confidence in the economy": fast-track trade legislation, his big-oil energy program and a multibillion-dollar piñata of corporate and high-end tax cuts. In other words, his old agenda repackaged as a response to war and recession. None of these could have been enacted prior to September 11. And remarkably, all are still in trouble now. The President's soaring opinion polls aren't making his agenda any more palatable.

In the war abroad, the President captured the middle ground by spurning the calls of the holy-warrior conservatives for a war of civilizations against Islam. By going with Colin Powell and coalition, United Nations-sanctioned diplomacy and a war targeted on Osama bin Laden, Bush cemented his support across the political spectrum. Democrats like Senator Joe Biden are now leading the defense of Administration policies.

Initially, Democrats offered similar support at home. Bush started meeting regularly with the leaders of both parties. Together they rushed through $40 billion in emergency appropriations for war and reconstruction and the $15 billion airline bailout, which did nothing for workers. They handed Attorney General Ashcroft virtually all the intrusive powers he sought in the antiterrorist legislation. Republican senators led the charge to federalize airport security, a bill that passed the Senate 100 to 0. House Democratic leader Dick Gephardt pledged that he would allow "no light and no air" between the President and the Democrats.

Bush seemed to reciprocate, even pledging $20 billion to New York City for rebuilding, and pinching Senator Chuck Schumer's cheek on national TV. He then signed off on the bipartisan principles for an economic stimulus put together by leaders of the budget committees.

But "patriotism," as that old Tory Dr. Samuel Johnson quipped, "is the last refuge of a scoundrel." Eight days after the terrorist attack, the Wall Street Journal laid out the scoundrel agenda in an editorial arguing that Bush's newfound popularity made his "agenda far more achievable"--including billions more in tax cuts, drilling in the Alaska wilderness and the appointment of reactionary judges. Scoundrel time opened immediately. Senate Republicans held up the defense bill, trying to attach the President's energy program to it. They filibustered foreign assistance appropriations, trying to force Democrats to confirm some of Bush's Neanderthal judicial nominees. House Republicans sat on the emergency airport security bill, theologically opposed to making that a federal function. US Trade Representative Robert Zoellick campaigned for fast-track trade authority, suggesting that its opponents, like bin Laden, reject the modern world. And House majority leader Dick Armey and others in what Newt Gingrich called the "perfectionist caucus" of the party went ballistic at Bush's embrace of a balanced stimulus package and marched up to the White House to bring the President to heel.

So, House Republicans passed, on a virtual party-line vote, a shameless special-interest bauble of corporate and upper-end tax cuts in the name of stimulus. The bill showers two-thirds of its $212 billion, three-year benefits on corporations and three-fourths of its individual tax cuts on the top 10 percent of income earners. In the name of giving a temporary boost to the economy, the bill permanently repeals the alternative minimum tax on corporations (a law that insures that no matter how clever their lobbyists and accountants, profitable corporations have to pay something in taxes). Laughably, the House bill makes the repeal retroactive for fifteen years, with the result that IBM gets $1.4 billion in rebates, General Motors $833 million, General Electric $671 million and Enron (the leading Republican contributor) $254 million.

More than 500,000 workers have been thrown out of work since September 11. Two-thirds will get no help from our unemployment insurance system. Few will be able to sustain health insurance for their families. But Dick Armey dismissed bolstering unemployment insurance as against "the American spirit," and Treasury Secretary Paul O'Neill scorned it as part of a "spending package, not a stimulus package." Similarly, even as cities and states face a deepening fiscal crisis, the White House opposes any assistance to them in the stimulus bill.

War profiteering is as old as the Republic. But usually the corporations involved are producing something for the war effort, not simply raiding the Treasury. And usually Presidents try to curb the profiteers. Now Bush cheers them on, announcing that he is "very pleased" with the House bill.

The blatant plunder in the House bill finally sparked a reaction. AFL-CIO president John Sweeney, already enraged by the airline bailout, mobilized workers across the country to demand aid for the unemployed. Progressive Democrats revolted in the House caucus, stiffening resistance to the Republican bill. Focus groups and polling showed people angered by the corporate profiteering. This was tonic for the courage of Democrats setting up a battle over the bill in the Senate. At the same time, Senate Democrats faced down the Republican filibuster on judges. Lack of support deferred votes on fast-track trade authority in the House and on the energy bill in the Senate.

Bush seems intent on pushing his flawed stimulus bill and forcing a vote on fast track. The corporate wing of the Democratic Party is busy brokering a back-room deal. But the scoundrel patriots are disgracing the flag they drape themselves in. They can succeed only if the public remains distracted by anthrax and Afghanistan. If people of conscience in both parties stand up and the public gets a whiff of what's going on, Bush may find that even the leader of a nation at war can't sell these lemons.

Joe Stiglitz is no fan of Washington consensus-style globalization. Read "The Globalizer Who Came In From The Cold," an interview with Stiglitz on the IMF, World Bank and WTO conducted by Gregory Palast.

Moving to exploit a shifting political landscape in the aftermath of the September 11 terrorist attacks on the World Trade Center and the Pentagon, President Bush's Congressional point man on free

At a time when the economy needs vast and purposeful help from the federal government, America faces a peculiar handicap: Neither political party really believes in liberal economic intervention or knows how to do it. Democrats are still not over their infatuation with Hooverite fiscal austerity--embracing budget surpluses, bemoaning deficit spending. Other than serving their wealthy friends, Republicans work at dismantling government's ability to steer and stimulate the private economy. Both parties are enthralled by the most conservative advisers, Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Robert Rubin (now at Citigroup), who counsel caution. Democratic Senate majority leader Tom Daschle expressed doubts about any stimulus program, fearful that next year's budget might go into deficit.

This reluctance to act boldly will have to change very quickly. The economy was already in contraction before September 11. It needs hundreds of billions in new federal spending--yes, deficit spending--to counteract the great shrinkage under way in consumption and business investment. No one knows the severity of what's unfolding, but false optimism will make things much worse. Acting too fast and spending too much have economic risks, but none compare to what can unfold if Washington is too timid.

Back to basics. As John Maynard Keynes and American originals like Marriner Eccles, FDR's Fed chairman, taught, when the economic engine starts to seize up, government is the only force capable of jump-starting it--pulling idle capital into real investment while bolstering the incomes and confidence households need to buy things. It does this by borrowing the money from private sources--running large federal deficits financed by Treasury bonds--and spending the money in ways that generate waves of collateral economic activity. Deficit spending is not an unfortunate side effect. It is the necessary cure. America is especially vulnerable now to a deepening contraction because Washington is flush while companies as well as households, particularly those in the bottom half, are mired in debt. An aggressive government stimulus program is essential to regenerate the wherewithal--and the motivation--for business and families to renew their spending. If we are truly at war, the government must also do this in ways that renew social trust and a sense of equity. Patriotism cannot endure if the reigning ethos continues to be "winner takes all."

The $15 billion bailout for the airlines is a disgraceful start. Washington couldn't avoid aiding these terribly mismanaged companies, but it demanded nothing in return for the taxpayers or the workers being laid off by the tens of thousands. When Congress bailed out Chrysler twenty years ago, Lee Iacocca volunteered to work for $1 a year, labor got a seat on the board and the government took warrants in exchange for its cash infusion, later redeemed in full. This time hapless Democratic Party leaders refuse even to demand that the CEOs stop ripping up union contracts. The insurance industry is next in line for a handout, and there will be others. If more bailouts follow the same pattern, America's newfound unity will swiftly curdle into bitter resentments.

The agenda must be of sufficient scale to make a difference--and pump out money quickly. Top-end tax cuts, the Republican answer to all questions, are particularly inappropriate; companies and capitalists aren't likely to invest when consumers are cutting back. Particularly laughable is the reflexive Republican call for a capital gains tax cut, as if investors need an incentive to sell stocks.

The government's $40 billion emergency appropriation for reconstruction and the military is only a hesitant start. Washington should immediately ship $40 billion or $60 billion (or more) in revenue sharing to state governments that are being forced by balanced budget requirements to cut spending or raise taxes. And rather than cut domestic spending to pay for the huge bundle just approved for the Pentagon, Congress should fully fund domestic programs--particularly those in education, nutrition, housing and health. Congress should also act immediately to aid those workers being laid off through no fault of their own. A sensible program would extend unemployment insurance to thirty-six weeks and raise the average benefit to $300 a week. Special provisions are needed for short-term, contract and part-time workers, who would otherwise not be eligible for assistance. The Economic Policy Institute estimates that a decent unemployment insurance program might cost $30 billion a year.

On a grander scale, America has huge unfilled public investment needs that can easily cost more than $1 trillion over the next five years. The money can buy things people and society want and need:

§ Education. School boards have a backlog of thousands of desperately needed school construction and repair proposals. A $40 billion school fund could generate construction jobs and contracts across the country in a matter of weeks.

§ Health. One essential defense against terrorist attack with biological or chemical weapons is to rebuild our decayed public health infrastructure--laboratories, public hospitals and clinics, and properly staffed public health departments with modern computer and communications systems.

§ Transportation. To counter highway congestion and the nightmare of air travel, the country needs to develop alternatives like high-speed trains. This takes planning and time, but many projects are ready to go. For example, MAGLEV Inc., a Pittsburgh consortium, has been seeking federal funds to demonstrate a high-speed train that could get to Philadelphia in ninety minutes.

In addition, Congress can swiftly get money into the hands of those most likely to spend it. The next tax rebate can be targeted to low-wage workers who got nothing from the Bush tax cut; it would pump about $10 billion into the economy. The government could require all contractors to boost pay to a living-wage level. Aggressive new wage standards should be part of the government's quid pro quo for corporate bailouts. Indebted families need "stretched out" payment terms so they can keep spending.

After decades of conservative government, the list of needs and possibilities is long. Alert citizens must understand that it's time for Washington to act boldly, on a scale commensurate with the challenge. They must awaken Washington politicians from the stupor that suffocates imagination.

Bush lied. About
the cost of his tax cut. About who benefits. About his budget. He
lied when he claimed he could throw money at the military, fund a
prescription drug benefit, pass his tax cut and still not touch the
Social Security surplus. And he's lying now as his budget office
cooks the books to mask the fact that he's already dipping
into the Social Security surplus--without counting the full cost of
his military fantasies, or a decent drug benefit, or the inevitable
tax and spending adjustments yet to come.

Democrats have
every reason to rail about Bush's lies and to condemn his
irresponsible tax cut--about a third of which will go to the
wealthiest 1 percent (and for which, it should be noted, twelve
Democratic senators voted). But Democrats are about to lock
themselves in their own box with their posturing about the "raid on
the Social Security trust fund."

There is no lockbox and no
raid. The Social Security and Medicare trust funds are credited with
bonds for every dollar of surplus whether the money is spent, given
away in tax cuts or used to pay down the debt. Those bonds--the most
secure investment in the world--can be redeemed when Social Security
payments start to exceed payroll taxes. When the surpluses first
showed up, Clinton invented the notion that paying down the debt
would "save Social Security first" as a clever tactical ploy to fend
off Republican tax cuts. With the economy growing and unemployment
low, debt reduction had a threadbare rationale. But even then,
Clinton was forfeiting a historic opportunity to argue for meeting
vital needs: healthcare, housing, more classrooms and teachers,
preschool for all. Now Democrats have turned Clinton's tactics into
perverse principle. The trust fund surplus is "raided" if it doesn't
go toward debt reduction. House minority leader Dick Gephardt argues
that Bush should present a new budget--one with either less spending
or more taxes.

But the world economy is teetering on the
verge of a global recession. Japan is sinking. Europe is slowing.
Latin America is a basket case. The US stock market has tanked.
Corporations are slashing investment and laying off workers.
Consumers are starting to tighten their belts. State and local
governments are cutting programs. This is hardly the moment for the
federal government to run the second-largest surplus in history. And
Bush already has his tax cut for the wealthy. So all the Democratic
posturing about the lockbox puts pressure on spending. Already White
House flack Ari Fleischer says the squeeze "will prevent the
politicians from busting the budget and spending more pork." Worse,
Democratic talk about "raiding the trust fund" adds to the myth that
Social Security is at risk--a big lie that Bush is pushing to sell
private accounts and cuts in guaranteed benefits.

Democrats
should be indicting Bush for turning his back on working families by
enforcing austerity in a time of need. They should be making the case
for extending unemployment insurance, aiding poor mothers (the first
to be laid off), making investments in housing, schools and mass
transit that can help jump-start the economy. And they should be
taking credit for the tax rebate that people are getting--that was a
Democratic idea that wasn't even in the Bush plan. Instead, Democrats
are whistling Calvin Coolidge and ceding the growth argument to Bush.
Bush says his tax cuts are needed to help the economy revive; that's
right--only he's lying about his tax cut. Most of it doesn't kick in
for years and goes to the already rich. Those cuts should be
reversed, particularly the ones in the estate tax, which is paid only
by the wealthiest families. Democrats should reclaim the money for
investment in making America better.

Now we have a
dishonest debate: Bush lies, and Democrats defend austerity in a time
of need. It's time for progressives inside and outside Congress to
find their voice and break with austerity politics.

Finally, President Bush is "deeply worried" about the economy. Yep, in remarks last week, he even went so far as to observe that "the recovery is very slow in coming."

Daniel Patrick Moynihan, the former senator, has a careerlong history of promoting bold new ideas for government, helping turn them into public policy and then explaining a few years later, with urbane detachment, why the scheme was wrongheaded folly. If the White House should succeed in dismantling Social Security as we know it, expect Moynihan to hold forth a few years from now on how stupid that was. The ex-liberal neocon intellectual is nimble if not reliable. In retirement he sounds like a born-again libertarian serving as high-minded front man for George W. Bush's privatization campaign, with textual conceits supplied by the Cato Institute.

Shame on Moynihan, but don't leave out his co-chairman on Bush's Commission to Gut Social Security, Richard Parsons, co-chief operating officer of AOL-Time Warner. Both are media darlings, well spoken and knowledgeable, but both are too smart not to know the deceitful word games their commission is playing on Americans. Big media, with a few honorable exceptions, are respectfully swallowing the big lies. In its news columns, the Washington Post described defenders of Social Security as "know-nothings" and "Luddites." On the editorial page, the Post called House Democratic leader Richard Gephardt "demagogic" for his reasonable assertion that Social Security's problems can be fixed without cutting benefits. The Moynihan-Parsons lies are more artfully crafted than the broadsides from ham-handed right-wingers, but they encourage the same fallacious inferences, designed to mislead and frighten: Social Security is on the brink; it hits the wall in fifteen years; the Social Security trust fund is a mere accounting device--the trust fund, the pair wrote in the Wall Street Journal, "holds no accumulated reserves of wealth but only promises that future taxpayers will be asked to redeem.... Where will the Treasury get the money?"

These scaremongering phrases are verbal tricks on innocent citizens unfamiliar with the accounting realities. Moynihan knows better because he co-engineered the bait and switch the last time a bipartisan commission "reformed" Social Security, back in 1983, when Congress raised the payroll tax rate dramatically to build up huge Social Security surpluses--$1 trillion now, more than $3 trillion by the end of the decade--the very surpluses Moynihan now suggests are meaningless. Social Security no longer operates on a pay-as-you-go basis; it's now pay-in-advance. Roughly three-quarters of the country pay more in regressive payroll taxes than in income tax. They rightly resent it, and Bush wants to whip that resentment into support for privatization.

If the money isn't there, as Moynihan-Parsons insinuate, what happened to it? The federal government spent it. What did it buy? Mainly, Reagan's huge tax cuts for corporations and the wealthy, also his military buildup. That money was borrowed, and when more workers retire, the government has to pay it back.

Practical solutions to this noncrisis are simple and modest in scale. The government can reborrow funds in the bond market to pay back Social Security when that becomes necessary. Or Congress could eliminate the earnings cap on payroll taxes that now exempts income above $80,000 (even Moynihan would raise the cap to $100,000). Or, for equity's sake, it could restore the estate tax on the wealthy that Bush just repealed and dedicate the revenue exclusively to Social Security.

Bush's privatization scheme is another grand attempt at bait and switch, only this time the money will be turned over to Wall Street, which just lost $3.5 trillion in net worth for American households. Yes, some people do win big in the stock market, but many others lose. The real trade-off citizens are being asked to accept is giving up the rock-solid security of social insurance for the open-ended risks of private investment. The ex-senator would not experience this, since he has a Congressional pension--a promise Congress is unlikely to rescind.

The affluent welcome the choice since they are already well fixed for retirement, but the majority will, I expect, wisely reject it. Social insurance does not make anyone rich, but it delivers what it promises: a modest but secure nest egg for retirees (also widows, orphans and the disabled). Moynihan's malicious insinuations to the contrary, Social Security can default only if the nation has collapsed in utter ruin or if right-wing politics cancels everyone's insurance policy.

Treasury Secretary Paul O'Neill is turning out to be a dangerous crank.