No Short Fix for the Nation’s Economic Woes

by Tula Connell, Nov 20, 2006

As pollster Geoff Garin writes in a current guest column for the AFL-CIO: Economic issues were an important part of the story behind the political earthquake that took place Nov. 7.

Along with the war in Iraq and the Republican culture of corruption, the economy played a critical role in the key battleground states that decided the election, according to the progressive advocacy organization, NDN. An NDN exit poll asked voters in key swing states about Iraq and the economy and found 

in each swing state, more voters thought the economy was either “extremely important” or “very important” in their decision over who to vote for their senator.

Economy vs. Iraq in Key Senate Races—NDN

With a working family majority in Congress this January, we have a chance to start addressing bread and butter issues. But it’s taken six years of fiscal mismanagement by the Bush administration to get this nation into this economic morass—and no quick fix will get us out.

Bush’s proclaimed “bipartisanship” already has started and finished at the rhetorical line. Just days ago, the Bush Justice Department announced plans to make it harder for prosecutors to force companies to waive their legal rights in plea negotiations to avoid indictment, people familiar with the plan say. Also, a Bush spokesperson said this week  there is no need to address the faulty Medicare prescription drug law that forces seniors to pay nearly $3,000 for the medications after a short period.

But while Bush “stays the course,” signs of a worsening economy emerge nearly every day. Friday, we learned that housing starts tumbled in October to the lowest level in more than six years, a result of waning home sales and swollen inventories, according to the U.S. Commerce Department. Building permits dropped in a record ninth straight decline—the lowest since December 1997.

Meanwhile, U.S. retail sales fell in October for the second month in a row, with economists at several big banks and independent research shops lowering their forecasts for U.S. growth over the next few quarters, according to CBS Marketwatch.

We hear a lot from Bush about the number of new jobs added under his watch. But that figure is 2.2 million fewer in the first 20 months of his second term than the number of jobs added by President Bill Clinton in the same time frame. Worse, recent employment reports indicate the jobs being created do not pay family-supporting wages or provide affordable health care or retirement benefits.

In a series of posts on the economic difficulties ahead, Bonddad points to the serious challenges we face, with signs of an impending recession, illustrated in part by last quarter’s GDP growth—an anemic 1.6 percent. The overall federal budget is out of control at best, making it extremely difficult to create or expand needed social safety net programs.

Next, the trade deficit set to make another record this year. Although the trade deficit contracted last month, it is still on path to set another record this year. Writes Bonddad:

The U.S. is still dependent on foreign capital to finance its way of life. Currently, the U.S. must import about 2 billion dollars a day. 

Again, Bush wants to stay the course. Last week he told top automakers there is no need to rein in unfair trade practices and currency manipulation by Asian competitors, the executives say.

By deliberately undervaluing its currency, the yuan, the Chinese government exports products at an artificially low price—running up the U.S. trade deficit and costing good American jobs.

An AFL-CIO report shows China’s fixed currency rate artificially lowers the price of its goods by 40 percent and subsidizes exports, putting U.S. companies at a disadvantage. The lack of currency flexibility has been a major factor in U.S. job losses and a trade deficit with China that hit $201 billion last year.

A growing trade deficit means the nation consumes more than it produces—and, eventually, decreases world confidence in the U.S. market. Says former Federal Reserve Chairman Paul Volcker:

At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing world economy could fade. Then some event, or combination of events, could come along to disturb markets, with damaging volatility in both exchange markets and interest rates. We had a taste of that in the stagflation of the 1970s—a volatile and depressed dollar, inflationary pressures, a sudden increase in interest rates and a couple of big recession.

Such diminishing confidence in the U.S. market already has started to happen. As Bonddad writes:

Various central banks (China, Russia, Japan, South Korea, Taiwan and several smaller countries) around the globe have already started to diversify away from the dollar as their primary reserve currency, opting to create a portfolio composed of dollars, yen and euros.

Newly elected Dems like Sen.-elect Jim Webb from Virginia ran, and won, on a platform to improve the nation’s economy for working families. Writing in The Wall Street Journal, Webb demonstrates a clear understanding of the nation’s growing wealth gap and our increasing struggle to remain in the middle class. Webb notes:

The true challenge is for everyone to understand that the current economic divisions in society are harmful to our future. It should be the first order of business for the new Congress to begin addressing these divisions, and to work to bring true fairness back to economic life. Workers already understand this, as they see stagnant wages and disappearing jobs.

Economist Dean Baker says the 2006 Democratic electoral victory substantially alters the political environment around several important economic issues such as an increase in the minimum wage, which House and Senate leaders promise to pass in the first 100 days of the new Congress.

But the longer-term solutions won’t happen quickly. Webb and other Democrats understand this, and it’s important we adjust our expectations to recognize what is achievable in the short- and long-term. We need to work hard to press our issues for the first 100 days—and remember that’s just the beginning.
 

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