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Government Spending Is Just What Our Economy Needs

Our  nation’s economy is approaching a precipice. The continuing housing market  crisis has stripped about $10 trillion from families’ assets, and nearly 1 in 10 workers are unemployed. Nearly 1 in 10 others are either working less than they want or have given  up their job search. Family income is now back where it was in 1996, in  inflation-adjusted dollars.

This all  means there is less money flowing through our economy. That’s just math.

The lingering consequences of the Great  Recession—the housing crisis, the jobs crisis, the fear among businesses to  invest their earnings despite record profits—continue to pull against faster  economic growth and job creation. Because customers have less money to spend  due to the collapse of the housing bubble and the ensuing high unemployment,  businesses have little incentive to hire and invest.

Even  Federal Reserve Chairman Ben Bernanke says there is a role for fiscal  policy. Monetary authorities have  already pushed interest rates down to zero. And they have few levers left to  spur growth, although there are some steps that would continue to help  on the margin.

In short, the economy continues to suffer from a  lack of demand.

The federal government can help with this. We know that government spending  can help restart an economy. Over the past two years, increased investments in  infrastructure have saved or created 1.1 million jobs in the construction  industry and 400,000 jobs in manufacturing by March 2011. Almost all of these  jobs were in the private sector.

Money  targeted toward the long-term unemployed helped not only those individual  families hardest hit by the Great Recession but also kept dollars flowing into  their local communities, keeping an average of 1.6 million American workers in jobs every  quarter during the recession. But now, the threat of jobs again disappearing looms  large.

Unless Congress acts, the private sector will  continue to generate insufficient demand. A  sweeping consensus of economists and forecasters across the political divide  now calls for the government to forcefully intervene in precisely this way, to  create demand for goods and services, which will in turn boost hiring and  business growth. Goldman Sachs, for example, said the positive effect of the  president’s American Jobs Act would increase U.S. gross domestic product by 1.5  percent in 2012.

Conservatives want us to believe that America’s broke,  that we cannot afford to address our most pressing issue—mass unemployment and  stagnating incomes. The reality is that there are clear steps that we can take  to pave the way for economic growth. Congress just needs to act.

 

By: Heather Boushey, Economist-Center for American Progress, Published in U. S. News and World Report, September 27, 2011

October 6, 2011 - Posted by | Businesses, Congress, Deficits, Federal Budget, GOP, Government, Ideologues, Ideology, Middle Class, Republicans | , , , , , , , ,

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