Beyond Uncertainty, The Need For New Economic Policies

Jan 31, 2008 Issues: Economy

In his State of the Union Address, the President said, “Our economy is undergoing a period of uncertainty.”  But for millions of people across this country, our economic difficulties are very, very certain indeed.

The economic stimulus package passed in the House is an important bi-partisan first step in addressing the serious economic challenges facing our entire nation.  The expanded, progressive tax rebate provisions will provide tax relief to 117 million middle class families—35 million more than the President’s initial proposal. 

Yet what is seriously overlooked by the President and Congressional Republicans is that long-term unemployment is now twice as high as it was in the last recession.  And nearly 1.3 million more people are expected to exhaust their unemployment insurance (UI) benefits in the first half of this year. These figures refute the argument being heard from some Republicans that extending unemployment compensation would undercut searching for work by the unemployed, whose desire to continue hard work for their families is apparently not trusted by those critics.

We can help these workers – laid off through no fault of their own – while they look for a new job and effectively stimulate the economy at the same time.

Economists widely agree that extending unemployment benefits is one of the most simulative approaches that can be undertaken, as it puts money into the economy immediately. For every $1 spent on extended unemployment benefits, $1.64 is generated in increased economic activity.
Extending unemployment insurance makes good sense for these families struggling with the high costs of housing, energy, education and health care, and it will give a boost to our economy.  We must learn from past recessions when we waited far too long to extend UI and act now.

The full attention of Congress on domestic and international economic issues is long overdue.  Globalization is here to stay, but we must use all of the tools at our disposal to shape its terms so that we maximize the benefits and minimize the downsides for U.S. businesses and workers.

Last year, the new majority insisted in discussions with the administration on a breakthrough in a new U.S. trade policy. The inclusion of fully enforceable labor and environmental standards in the U.S.-Peru Free Trade Agreement was the first step in a much needed course correction that Democrats have been fighting to achieve for more than a decade.

Our trading relationship with China has been another test of American trade policy. To date, the fundamentally passive approach of the administration has not succeeded.  The U.S. trade deficit with China was on course to reach yet another record high for 2007.  From January through November, the deficit was $238 billion, compared to $214 billion for the same period in 2006. 

As important as striking over-all numbers is the lack of recognition that China is increasingly moving into high value-added products.  For example, the U.S. trade deficit with China for “advanced technology products” is increasing.  In the first three quarters of 2007, the trade deficit with China in this category was $55.2 billion, compared to $44.9 billion for the same period in 2006. 

Put another way, the U.S. global trade deficit is about 6% of GDP, whereas China’s global trade surplus is at the record high of over 10% of its GDP.

With historic intervention in the currency market, rampant trade distorting subsidies and massive intellectual property rights violations, China has violated sustainable, viable rules of international competition.

When the issue arose of China’s entry into the WTO, I said it was necessary to recognize that China would be both a market for U.S. goods, investments and services and a competitor.  China is clearly implementing a domestic and international economic policy to advantage themselves in that competition.  The reactive, hands off approach of the Administration has not produced any significant progress to date, so active congressional participation is overdue to help chart the search for solutions.

Finally, in the era of globalization, in addition to good trade policies, we must also have programs which fully support workers in transition.  Last fall, the House approved a complete overhaul of the Trade Adjustment Assistance program to cover many more workers, provide much more effective training, and eliminate the burdensome rules that prevented workers from accessing the program. The opposition of the administration on this reflects combining a passive approach to shaping the terms of necessary expanded trade with passivity in acting to assist those dislocated in the whirlwind of globalization.  The Senate should act on this legislation without further delay.

Rather than basically more of the same, the certainty of the problems in our economy requires new policies.  The need for short-term stimulus is certain.  The immediate, stimulating effect of extending unemployment benefits is quite certain.  And, most certainly, with proper domestic investments, and effective international economic policies, including those relating to trade, we can achieve real, long-term economic stimulus.