Will Deficit Reduction Trump Investments In Economic Recovery?

It seems that conservatives have scored a big win. They’ve got the federal deficit in the bull’s eye. The debt we’re supposedly leaving to our children has become the unimpeachable reason for curtailing, if not altogether ditching, further investments to cushion the impacts of this prolonged recession and jump-start growth in the labor market.

Consider that Congress still hasn’t extended the expanded unemployment benefits and COBRA subsidies created by the economic recovery act beyond early June.

Nor has it acted on the looming crises resulting from the shortfalls in state and local budgets. The House is scheduled to vote on an extension of the enhanced federal match for state Medicaid programs tomorrow, but the outcome is uncertain because Members are queasy about the cost. This  is also the case with key provisions in Congressman George Miller’s Local Jobs for America bill.

The Center on Budget and Policy Priorities reports that at least 45 states and the District of Columbia have cut back spending in core areas like public health, elementary and secondary education and services for elderly and disabled people.

Virtually all these will cause further job losses–not only in the programs themselves, but in businesses that supply the programs with goods and services. Thirty states and the District have also instituted hiring freezes and/or layoffs in their own workforces.

All these and a host of other cuts will feed a vicious cycle. More unemployed people exerting pressures on the safety net, spending less and, of course, paying less in taxes. Perhaps, in fact, eligible for more in refundable tax credits than they pay into the states’ coffers. Retailers buying less from their suppliers, and all of them paying less in taxes too.

But, we’re told, the federal government has to address the rising deficit and related level of federal debt. No doubt about that. If we just keep on keepin’ on, spending will outpace revenues, even after the economy fully recovers.

So we’ll borrow more. The Congressional Budget Office says that the ratio of federal debt to the nation’s gross domestic product (the total value of all goods and services produced) will rise from somewhat below 60% during the coming decade to 79% by 2035. Looking ahead to 2050, CBPP projects a debt level in excess of 300% of GDP.

The consensus view is that sustained high levels of government borrowing drive up inflation and interest rates, making borrowing more expensive for individuals and businesses, as well as the government itself. And revenues that could otherwise be spent on domestic investments must be diverted to paying interest on the debt.

Economic growth slows. And ultimately, some say, investors will lose confidence and shift their funds out of investments based on the U.S. dollar. Today Greece. Tomorrow America.

But that tomorrow is a hypothetical long way off. Right now, we’ve got a jobs crisis and a lot of collateral damage. So it’s very disturbing to see concerns about the long-term, structural deficit override concerns about the here and now.

In February, Lawrence Mishel, president of the left-leaning Economic Policy Institute, and David Walker, CEO of the fiscally-conservative Peterson Foundation, co-authored an answer to the President’s quandary on the deficit. Address jobs now and the deficit later, they said.

CBPP seems to come from the same place. It recommends that Congress allow the 2001/3 tax cuts for high-income filers to expire and, in the short term, use the revenues generated to fund policies that will stimulate economic growth and job creation.

But any proposed tax increases, even those that would affect only the top 2% of the wealthiest households, stir up a maelstrom of opposition–as, in fact, has the President’s entire Fiscal Year 2011 budget, notwithstanding its selective freeze on discretionary domestic spending.

Perhaps the President’s new fiscal commission will come up with a balanced plan to control the long-term deficit. But the need for that shouldn’t be used to block spending needed now to keep the devastating impacts of this recession from getting worse.

Census Numbers Bad and Going To Be Worse

The Census Bureau’s 2008 report on income, poverty and health insurance coverage confirms what we already knew. The recession has pushed an enormous number of people into poverty. Between 2007 and 2008:

• The number of people living below the federal poverty threshold increased by nearly 2.6 million–from 12.5% to 13.2% of the population.
• The number of poor children increased to more than 14 million–19% of all children.
• Nearly 34% of black children and 30.6% of Hispanic children were poor.
• The number of children in deep poverty (below 50% of the poverty threshold) rose to nearly 6.3 million–8.5% of all children.

But this is only part of the story. The Coalition on Human Needs gives us a table that compares the most recent figures to the figures for 2000, just before the last recession set in. It shows that in 2008:

• There were 8.2 million more poor people and nearly 2.5 million more poor children than in 2000.
• The percentage of people in poverty was 1.9% higher and the percentage of poor children 3.2% higher.
• The number of children in deep poverty was more than 1.6 million (2.1%) higher.

And that’s still only part of the story because the recession has deepened since 2008. Last year’s unemployment rate averaged 5.8%. It’s now at 9.7%. And economists foresee no turnaround until some time next year, if then.

The Economic Policy Institute projects that by 2010:

• The poverty rate will have climbed to 15.1%–and to 31.6% for blacks.
• More than one in four children will be living in poverty.
• More than 46% of single-mother families will be below the poverty threshold–up from 37% in 2008.

Economists at the Brookings Institution have come to similar conclusions, though their numbers are slightly different. And they doubt the poverty rate will get back to its 2007 level during the next 10 years.

So, they say, the extra funds the economic stimulus package provides for disadvantaged families “will fade away long before the poverty rate is expected to peak.” We need to shore up the safety net for the long term, as well as to ensure that more people have the education and training they need to benefit from the opportunities the economy will ultimately provide.

Deborah Weinstein at CHN also calls both for continuing aid in the economic stimulus package and for investments that will create jobs and renew the economy. Failure to act, she says, will delay our further recovery. But it’s also “a moral wrong, since it causes preventable harm to vulnerable people.”

The harm she’s talking about speaks for itself in the poverty thresholds all these dire figures are based on. Nearly 40 million people below these thresholds–more than 17 million people at half or less than these.

Surely we can’t just tell these people to tighten their belts, keep on striving and wait for better days.

Homeless Report Shows Signs Of Recession’s Impact

The U.S. Department of Housing and Urban Development has just released its annual homeless assessment report. Figures in the report are from the homeless counts conducted in January 2008 and other local data collected for the October 2007-2008 period. The economic and foreclosure crises were in their early stages then. Yet we can already see worrisome changes.

• For the October 2007-8 year, the total number of homeless people in shelters and transitional housing was virtually unchanged, but the percent of them who were in families was up by 9%–to an estimated 516,724.
• About 61% of the adults in families who sought shelter at some point during the year had spent the night before in their own homes or with family or friends. Somewhat more than 19% of them had been in housing they owned or rented.
• About 3% more sheltered homeless people had been in the place they spent the night before for at least a year–another sign of destabilization.
• People were staying in emergency shelters and transitional housing for longer periods of time–one supposes because they couldn’t find affordable housing or someone they could double up with.

Nan Roman, President of the National Alliance to End Homelessness, calls these data “the canary in the coal mine” because rates that had been decreasing stagnated or swung up. And, as she says, homelessness if a lagging indicator of changes in the economy. So it seems reasonable to expect we’ll see more of the same.

HUD has begun issuing quarterly updates, reflecting data from nine communities. As the first report says, it’s hard to see patterns and risky to generalize.

With this caveat, it’s still worth noting that the number of homeless people in the reporting communities increased by 1.5% in the first three months of this year. And these were only people in shelters and transitional housing. Who knows how many more were in cheap motels, doubled up or on the streets?

The bright note is that Shaun Donovan, the Secretary of HUD, is talking of new strategies and funding to help homeless families, as well as the chronically homeless individuals that were his predecessor’s primary concern. Better yet, the economic recovery act is plowing more funds into programs to prevent homelessness.

Middle Class Families At the Edge of the Cliff

Last Sunday’s New York Times Magazine profiles a multi-generation black family to trace “the fall of the black middle class.” Their ladder up the economic scale was the auto industry, and it’s been pulled out from under them.

This is a story that’s being replicated throughout the Detroit area. But a new report from Demos tells us that it’s only the latest chapter in a longer, broader downslide for black and Latino middle-class families.

The downslide here isn’t in employment rates. It’s in economic security–a combination of factors that enable families to remain financially stable and recover from setbacks. These factors include education, housing costs, health insurance, household budget and assets.

Even before the recession, black and Latino middle-class families were less likely than others to be economically secure. And more of them were sliding toward potential poverty. Between 2000 and 2006, the percentage of black families that were economically secure fell from 26% to 16%. For Latino families, the drop was from 23% to 12%.

Demos singles out three principal factors in the declining stability of black and Latino middle-class families–loss of health insurance, rising housing costs and declining assets.

Yet the story here isn’t only about certain minority groups. For middle-class families overall, the percentage that were economically secure dropped from 29% to 24%. In other words, 76% of middle-class families were at the edge of a cliff when the recession set in.

Demos calls for policies that will strengthen the middle class as a whole–policies that address the housing and health care crises and help families build assets and reduce debt.

But we surely also need to strengthen the safety net. Because it’s quite clear that most middle-class families–not to mention poor families–don’t have the wherewithal to manage a job loss or any other further pressure on their resources.