Bush Announces Plan to Spur Economic Growth
TONY COX, host:
Now, we're going to switch gears a bit and talk about the economy and concerns that we are headed for a recession. Joining us today from South Carolina as well is Bill Spriggs, professor and economics chair at Howard University in Washington, D.C.
Bill, welcome to the show.
Professor BILL SPRIGGS (Howard University): Thank you for having me today.
COX: Last Friday, President Bush called for a $145-billion economic recovery package. It would include rebates to American taxpayers and incentives to businesses in an effort to ward off a possible recession and to give a shot in the arm to the U.S. economy.
Now, while the president has sought a more permanent solution to the economic trouble, this temporary approach has so far, at least, been met with cautious optimism on Capitol Hill. The specifics of the president's plan have yet to be worked out with Congressional Democrats and Republicans, but the initial sentiment from the Hill was that this was a start. And that was something everyone seemed to agree was necessary to get the economy back on its feet.
So Bill, is this a recessionary plan, or a pre-recessionary plan? And does that make a difference in terms of how to stimulate growth?
Prof. SPRIGGS: The problem that Congress has is that we economists date recessions looking backwards. So we actually have to gather information on a couple of quarters of economic activity, and then, after the fact, we declare, oh, by the way, you know, last month we were in a recession.
So a criticism is that it takes Congress too long to react. I don't know that this is a pre-recessionary plan, and I don't know that there would be a real difference between a plan to recover from a real recession or as we go into one. The issue is you want to maintain consumption and keep people from being overly protective and saving money because from an individual's perspective, the best thing to do is to save and not spend during a recession. The worst thing for the economy is for everybody to make that decision at the same time.
COX: Now, what is the definition of a recession? That might be helpful for our audience. Is it two consecutive quarters of loss and gross domestic output, or what exactly is it?
Prof. SPRIGGS: That's the sort of general way in which economists define it. There's a little bit more involved than that, but generally speaking, if we have six great months where the economy is contracting in terms of all the goods and services produced, then, we call that a recession.
COX: Now, it's been said, Bill, that when America catches a cold, African-Americans get pneumonia. Now, economically speaking, is that still true? And if it is, how much can the rebate and business incentives being proposed help those at the bottom of the financial food chain?
Prof. SPRIGGS: Well, when recessions occur then - what's happening is that companies are no longer generating new jobs. And since we tend to be the last ones in the cue to get a job, it means we're the first ones to show up as being unemployed because we can't get a job. Then the businesses by, you know, needing to contract even further start firing people, and then we really take it at that point. So, yeah, we do tend to catch it first because we have difficulty getting jobs when they become scarce and then we tend to be the first ones fired. And so…
COX: Go on.
Prof. SPRIGGS: So, yeah, it is important for African-Americans that a tax rebate be aimed at not just income taxes, which is what President Bush did during 2001, but that all taxpayers because a big chunk of the federal tax revenue comes from the Social Security tax, the payroll tax that everyone pays. Many African-American households are eligible for the earned income tax credit, which rebates portions of that payroll tax. It means that they don't have a federal income tax liability, so the details matter here.
When the president says, a rebate to taxpayers, if he means income taxpayers, he's cheating all of those Americans who pay payroll tax, but don't have an income tax liability.
COX: Here is the question I was going to ask you as a follow-up to that. In fact, Fed Chairman Ben Bernanke and other economists have indicated that it's the poor and the working poor whose spending habits will spur the economy back to health if they're given cash, if the president's plan calls for. So, how does that work? Is it the reverse of Ronald Reagan's old trickle down theory?
Prof. SPRIGGS: The - if you really want the economy to grow, it's like growing a rosebush. You water from the roots. And, yes, it is the reverse of Ronald Reagan. If you water a rosebush from the top then you get black spot and fungus growing on the rosebush, it won't grow. You got to water the roots. So, yes, this is the reverse of what Ronald Reagan tried to preach the people for 20 years. And as we saw, all you get is income inequality growing. The plant will make it, but you get income inequality. If you grow it from the bottom, then everybody benefits.
COX: Can you compare this proposal, the president's proposal to the last time we faced a recession - I believe that was at the beginning of the decade - and what was done about it at that time?
Prof. SPRIGGS: Well, he had tax cuts, which is number one priority to get out of recession that came, his first year in office. And those tax cuts included not only help to those who were low income, but not very low income. He was aiming at sort of middle class. And then he put in an extra bit for upper-income people that kicked in the second year and the third year, and he now wants to make permanent, which had nothing to do with the economic recovery and everything to do with the deficit that we had at the Federal Level. And that we're just still trying to recover from.
So, he put in an economic package on top of the stimulus package. He missed the people at the bottom. And because of that, this recovery was not beneficial to people or poor people or who are poor during the so-called recovery, actually became poorer and we saw a rise in poverty, even though the economy started to recover around 2002.
COX: Some economists are saying that compared to other decades, our unemployment growth and inflation numbers aren't really, aren't so bad. What's your take on that?
Prof. SPRIGGS: This is the worst labor market since Herbert Hoover. No president in the history of the United States has done worse than George W. Bush in terms of labor growth. And the big question we're going to have coming out of what maybe another recession under his leadership, is where we will get the job growth.
Of the 10 highest-paying industries in the United States during this so-called recovery, eight of those 10 industries were losing jobs during the recovery, including in furniture manufacturing and in appliance manufacturing. The two sectors you think would have benefited from the housing boom that took place since, of course, new homes need furniture and need appliances. So, this is going to be a very difficult recovery coming out of what we're in right now because we have not generated the jobs typical of most expansions.
COX: Is labor what drives the engine of the economy?
Prof. SPRIGGS: Well, labor drives the engine because people have to have the income to spend and it comes from getting jobs. And if you don't generate the jobs, they don't have the income, and we have to see wage growth among the people who are working.
So, that's what makes this path that we've been on the last six years very difficult. The way people made it was they went into debt. And now, we're having a crisis because they took on too much debt, and they're starting to foreclose on homes and get behind on their credit cards.
COX: Looking at the economy overall, at the condition that it is currently in, what do you think happens if no plan is approved pretty soon?
Prof. SPRIGGS: Well, it would be very dangerous if we don't get a plan in place very soon because we need to try and shore up the confidence of the American consumer. Get them believing that the government understands what's happening and get them confident enough to spend.
COX: Is it already too late as some Wall Street - some people on Wall Street are suggesting that we should have done something already?
Prof. SPRIGGS: No, I don't think it's too late. I don't think it's too late at all. I think that now is the time - the government actually can act quicker than Wall Street believes if there can be a quick consensus. This is the season when people are preparing their tax returns and would be very easy to put extra money into those tax returns and get people money by March or April.
COX: Final thing is this, do you think, as we sit here today, that the Fed -Federal Reserve and Ben Bernanke and the White House and Congress are on the same page on this?
Prof. SPRIGGS: Well, I think the pressure that they're getting from Wall Street and clearly the criticism has stunned Bernanke from Wall Street. There is enough pressure to get everybody on the same page.
COX: Well, it would be interesting to see as it develops. You're hopeful that a plan will be approved within the next - what, month?
Prof. SPRIGGS: I'm hopeful that in the next month the plan will be approved.
COX: I appreciate your coming on. Thank you very much, Bill.
Prof. SPRIGGS: Thank you.
COX: Bill Spriggs is a professor and chair of economics at Howard University in Washington, D.C. He spoke with us from Myrtle Beach, South Carolina.