God, I cannot explain how much I love Robert Reich, commentator for Marketplace and former Clinton cabinet member. His commentary this week about how the downward spiral of the economy is caused not just by the lack of jobs and high energy costs, but by stale and stagnant wages is brilliant. So, yet again, I'll post it here and bask in it's glory.
Robert Reich: The economy is failing, but it's now clear the Fed won't revive it. It figures if it cuts interest rates, global investors will move their money out of dollars, causing the dollar to drop further, meaning more inflation as the price of everything we buy from the rest of the world, including much of our oil, rises even faster.
Yet American consumers cannot stimulate the economy on their own because they don't have any money left. And exports can't make up the difference. So how to get back on track?
Blue Dog Democrats, Calvin Coolidge Republicans and Ross Perot Independents all must understand the critical importance of a fiscal stimulus right now. And it has to be on the right scale. Distributing those little stimulus checks last month was like dispensing aspirin for pneumonia: momentary relief for a whole system desperately sick.
The fastest and strongest stimulus would be a one-year exemption of the first $15,000 of income from payroll taxes, starting as soon as the bill is signed. Congress still has time to pass this before the session ends.
This should be followed soon after the next President is sworn in by major infrastructure spending based on a newly-formed capital budget. Expand public transportation, fix hundred-year-old sewer and water systems, rebuild levees, invest in green technologies. All this will get the economy moving and bring it into the 21st century.
But to keep the economy moving, the middle class will need to get back some of the buying power it's lost over the years as almost all of the benefits of growth have gone to the very wealthy. The surest way is through a middle-class tax cut financed by a tax increase on those at the top.
In other words, now that the Fed's hands are tied, we need a bold fiscal policy, a stimulus large enough to get the economy moving again and a progressive tax system large enough to keep it moving. The question is how low the economy will have to sink before there's political will to do this.