Commentary | Economic Growth

Be wary of half-a-loaf economic stimulus

Opinion pieces and speeches by EPI staff and associates.


Be wary of half-a-loaf economic stimulus

By Ross Eisenbrey

If your philosophy is that something is better than nothing, Congress gets good grades for the anti-recession package it just approved and President Bush signed. It will put extra money quickly into the hands of many of the people who are most likely to spend it. That would help keep falling consumer demand from driving employers to cut jobs as fast as they otherwise would have done. And the stimulus package also includes people who earned too little to pay income tax.

But if your grading standards are a bit higher, it’s hard to give more than a gentleman’s “C” to the plan, because it fails to address the single biggest problem associated with recession: long-term unemployment.

As the recent employment report revealed, for the first time in almost five years, the number of jobs in the nation actually declined. Not only are more people unemployed, but more have been out of work for six months or longer — 1.38 million as of last month. And the most effective way to boost the economy is to extend jobless benefits for these long-term unemployed because they spend the money on the necessities of life.

These conclusions are commonsense, but commonsense isn’t as common as it should be inside the Washington Beltway. When the Democrats in the House of Representatives negotiated this anti-recession plan with the Republican minority and the Bush White House, they won some worthwhile provisions. But extended unemployment benefits weren’t part of a package that also included wasteful tax cuts for businesses and rebates for high-income people.

Wisely, the Senate Finance Committee included extended jobless benefits in its economic recovery plan. But there wasn’t a large enough majority in the Senate to pass this provision over the opposition of the White House and the Republican leadership.

Still, the problem of long-term unemployment persists and increases. Already, nearly 1.4 million workers have been unemployed more than six months and are no longer eligible for benefits — a group that will grow 40 percent by the end of the year. As their bank balances disappear and their credit cards max out, they’ll have a harder time meeting basic household expenses and keeping up their mortgage or rent payments. Another half million will probably exhaust their benefits by the end of the year. The entire economy will suffer, as hundreds of thousands of households spend less money, and many start drawing on public assistance programs.

That’s why Congress still needs to act — hopefully, sooner, not later — to make sure that Americans who have a hard time finding work can keep a roof over their heads and put food on the table. As Congress has done in earlier recessions, the Senate Finance Committee plan would extend unemployment insurance by 13 weeks, in addition to the normal 26 weeks. In states where joblessness has averaged 6.5 percent or more for three months — Michigan, for instance — there would be additional extensions of unemployment benefits.

These extended unemployment benefits fit the bill for an effective and efficient anti-recession program. No new bureaucracies are necessary — the states already have the systems in place to provide benefits for the unemployed. The program is targeted to those who need it most, applying only to workers who have been looking for work for more than six months.

Most important of all, helping the long-term unemployed is a proven way to jumpstart the economy. Because they’re down on their luck and low on cash, these jobless Americans will use their unemployment benefits to pay for food for their families, clothes for their kids, and other basic needs, pumping more money into the economy and pulling the nation out of a recession. In fact, the Congressional Budget Office and Mark Zandi of Moody’s agree that extended unemployment benefits are the most effective economic stimulus program, eventually increasing consumer demand by $1.64 to $2.15 for each dollar spent.

While the case for extended unemployment benefits is compelling, the arguments against it are insulting to Americans who have worked hard for most of their adult lives but now are out on the street for reasons beyond their control. For instance, Sen. Judd Gregg (R.-N.H.) recently declared: “Most people find a job in the last two weeks of their unemployment. That’s human nature. They stay on unemployment until the end, and then they find a job.”

In fact, few workers would rather rely on unemployment benefits, which average only $282 a week, than enjoy the security, the opportunity, and the dignity that come with earning a paycheck, receiving health and pension benefits, having a career once again, and not having to explain to their kids why they’re not working any more. The problem is: There are many more unemployed Americans than available jobs. According to the federal Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, as early as last November, there were 7.6 million unemployed Americans but only a little more than 4 million job openings — almost two jobseekers for each available job.

The best way to jumpstart the economy and generate jobs is to offer a helping hand to the 1.4 million Americans who have been out of work for far too long. It’s commonsense. It’s common decency. And the members of the House and Senate from both parties who refuse to recognize this reality will get their comeuppance from their constituents.

Ross Eisenbrey is vice president of the Economic Policy Institute, a nonpartisan think tank based in Washington, D.C. E-mail comments to


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