Old adversaries make a new bid for power.
The war that bin Laden wants.
Behind the Burka
Afghan women who fight the Taliban.
Humanitarian aid has become a weapon of war.
The terrorist money trail leads back to Midland, Texas.
Congress is making the economy worse.
Why the Democrats will get trounced in 2002.
A New Peace Movement?
Should the government be allowed to hold immigrants on "classified" charges?
Citibank attacks money-laundering regulations.
Immigration reform is derailed by attacks.
Coal Miners' Slaughter
Could an Alabama disaster have been prevented?
Time Is Tight
The cutoff is starting for welfare recipients.
FILM: Take a left turn at Mulholland Drive.
Shakespeare at the Barricades
BOOKS: Insurrections in the mind.
Trading on Terrorism.
Give War A Chance
Congress is only making it worse
Beyond their immediate toll, the September 11 terrorist attacks kicked an already
tottering economy toward what could be a sharp recession. Hundreds of thousands
of announced layoffs are likely to ripple through the economy, further souring
consumer and business confidence, cutting consumption and halting investment.
As tax revenues decline, state and local governments will be forced to cut services
and jobs. Even before this recent crisis, the manufacturing and agriculture
sectors had been suffering for several years. The economy had been running on
consumer debt and the twin bubbles of high tech investment and stock speculation.
Now that magic is gone.
The collective shock of September 11 also has given a new sense of urgency
to bolstering the domestic economy and a new respectability to our much-maligned
federal government. Because of the war against the Taliban and terrorists, the
administration needs a semblance of bipartisanship, and it cannot risk seeming
completely insensitive to average working people.
Across most of the political spectrum, theres a conviction that low interest
rates alone wont be enough to fix the damage. The federal government must
also use its budget powers to pump up a deflated economy. Yet many congressional
Republicans are far more insistent on using the crisis to promote a grab-bag
of irresponsible measuresmainly tax cutsthat have nothing to do
with fighting terrorism or boosting economic growth and everything to do with
their long-standing ideological agenda of shrinking government and making the
rich richer. The danger is that Democrats will be cowed by presidential appeals
for bipartisanship to accept nakedly rapacious policies covered with a few fig
leaves of compassion.
The mandate for the federal government is clear: to quickly increase demand
for products and services by spending more and by putting more money in the
hands of the consumers most likely to spend. The combined stimulus has to be
large enough to be noticeableat least 1 percent of the trillion-dollar
gross domestic product, or $100 billion, even according to Federal Reserve Chairman
Alan Greenspan. Such spending not only would keep people employed and provide
business markets, but it would help renew confidence (reviving the animal
spirits that drive business expansion, as Keynes argued). At the same
time, these policies to stimulate immediate consumption need to serve long-term
goals: promoting productivity as well as social equality and economic security.
Fortunately, the best short-term strategies also contribute to the long-term
Unfortunately, most of the Republican ideas are bad on both counts. While the
mix of proposals has been in flux, some of the leading ideas advanced by both
the White House and Congress include speeding up the start of tax cuts approved
earlier this year, cutting corporate income tax rates and capital gains taxes,
accelerating depreciation schedules, offering investment tax credits, and eliminating
the alternative minimum tax for corporations. With audacity that irritated even
Democrats who consider themselves free traders, the administration also has
promoted legislation giving the president special trade promotion authorityformerly
known as fast trackas a measure to both fight terrorism and
But nearly everyone in Congress approved emergency aid for New York and $15
billion in grants and loan guarantees for the airlines. The bailout of the airlines,
which adamantly resist government regulation, was more a testament to their
quick exercise of well-financed political clout than to the merit of their case,
but at least the legislation gives preference to loan guarantees that provide
the federal government an equity stake. Nevertheless, the ad hoc aid for an
industry where most companies were losing heavily even before September 11 triggered
a long line of suitors for government salvationhotels, rental car agencies,
insurance companies and more. In most of these cases, corporations are simply
pleading for the public to assume the risks of their business, when a general
economic stimulus would be far preferable to any industry bailout. (However,
in the case of the steel industry, battered for years by dumping of steel products
by foreign companies, an industry-specific package of loan guarantees, import
restraints and shared responsibility for retirees is needed.)
As the discussion of a stimulus package unfolded, Democratsprodded by
labor unionspressed for financial assistance to the estimated 100,000
laid-off airline workers ignored in the bailout of the airlines. The aidas
well as a Democratic proposal to have the federal government take responsibility
for airline securitywas delayed by Republican opposition on the absurd
ideological grounds that such federalization represented creeping socialism.
Democrats also proposed unemployment insurance extension and reform as well
as subsidies for health insurance, especially to help laid-off workers preserve
their employer-paid coverage. The Center on Budget and Policy Priorities has
proposed that the federal government quickly expand Medicaid payments to help
maintain state programs and subsidize health insurance for low-income unemployed
workers. Washington should also revive revenue-sharing and forestall state and
local government cutbacks that would only worsen the recession.
Congressional conservatives are unhappy that Bush has endorsed extension of
unemployment insurance benefits and modest sums for states to expand health
care coverage. The president even has indicated that he might reluctantly accept
a minimum-wage increase (probably hoping to win Democratic support for large
business tax breaks). But Bushs proposal would do nothing to make unemployment
insurance more widely available (only about 37 percent of the unemployed receive
insurance benefits), would provide extended benefits to very few workers, and
in many states would not raise the meager minimum payments. This inadequate
plan would especially shortchange women formerly on welfare, who are typically
in low-wage or contingent jobs that may not qualify for unemployment insurance.
Yet there is evidencesuch as the sharp drop from July to October in employment
rates of single mothersthat many former welfare mothers are losing their
jobs without any safety net.
In stark contrast to the Republican proposal, Illinois Democratic Rep. Jan
Schakowsky proposed rescinding the scheduled future tax cuts that are skewed
heavily to the rich. And the administration may join Democrats in supporting
at least some version of a further temporary tax rebate, most likely targeted
to workers who received little or no tax rebate earlier this year. The argument
for such rebates and against the Republican tax plans is straightforward: Low-income
people not only are more likely to need help in tough times, but are more likely
to spend the rebate immediately.
Corporate tax breaks that supposedly lower the cost of capital are simply windfalls
to the undeserving and do almost nothing to stimulate new business investment.
Furthermore, in the Republican proposals, the tax cuts for corporations and
the rich are permanent (and many wont kick in quickly) and will simply
starve government of funds needed in the future. That will lead to fiscal crisissuch
as budget deficits when the economy is growing (precisely when the budget should
be more in balance or even running surpluses) or to underfunding of Medicare,
Social Security and other essential government programs.
House Majority Leader Dick Armey argues that the economy will be propped up
by a three-legged stool: the stimulus plan, trade promotion authority and energy
legislation. Armeys stimulus leg is both too weak and of the wrong shape
to do its job. The energy legislation, a giveaway to the oil companies, is equally
misfit: Incorrectly billed as a way to reduce energy prices (which are already
declining without the legislation), it fails to recognize energy efficiency
as the most sensible path to reduce long-term energy costs, lower trade deficits,
enhance national security and protect the environment. The final legtrade
promotion authorityis suitable mainly to support a throne for the limited
few. Indeed, the majority of Americans are likely losers if fast track is approved.
The claims that trade promotion authoritywhich Bush hopes to use in pushing
through an extension of NAFTA to South America and new rounds of negotiation
at the World Trade Organizationwould buoy the economy or fight terrorism
are deeply flawed. Trade promotion authority on its own does nothing except
limit congressional debate and bar amendments to trade deals. Moreover, the
presumed trade agreements, which could be negotiated without it, would provide
only a modest stimulus. For example, the International Trade Commission has
projected that eliminating all tariffs and quotas would increase the economy
by only about $19 billion, or less than two-tenths of a percent of the gross
domestic product. But even that may be overstated. As Peter Dorman of the Economic
Policy Institute observes, the models typically used to project trade benefits
are based on assumptions that ignore all of the criticisms of free trade and
have a dreadful track record of predicting results of trade deals.
In any case, trade benefits are distributed unevenly, with owners of capital
and high-income workers gaining the most, according to Dean Baker and Mark Weisbrot
of the Center for Economic and Policy Research. Even granting that trade may
have stimulated growth, they conclude that the wages of three-fourths of the
U.S. work force have declined by roughly 2 to 13 percent over the past two decades,
depending on which economic model is used. Meanwhile, the growing trade deficit
primarily in manufactured goodsconcealed by the now-stalled growth of
the domestic economyhas not only led to the loss of 3.8 million jobs over
the past eight years and stagnation in workers earnings, but puts the
entire economy at risk of a currency crisis, according to Jeff Faux of the Economic
For trade to improve the general welfare and broadly raise incomes in the United
States and elsewhere to stimulate economic growth, there must be strong international
safeguards for workers rights and the environment. But the references to labor
and the environment that Chairman Bill Thomas (R-California) pushed through
the House Ways and Means Committee in a highly partisan vote were much weaker
than the trade-negotiating language Congress has adopted many times beforewith
virtually no progress in those deals. Many Democrats who previously had supported
fast track have opposed presidential trade promotion authority this year.
All of this hardly sounds like a strategy for preventing recession. If Armeyor Bushwants the policy to revive the faltering economy to rest on a three-legged stool of regressive, ineffective tax cuts, a misguided energy policy and trade deals that bring high costs and few benefits, he should sit on it wearing a dunce cap.