The global financial markets tanked again as the financial crisis goes global - even Iceland is facing a serious crisis. Wall Street's reaction to the $700 billion financial bailout Congress approved last week has been a massive selloff. And that's leading some to ask if the bailout fails, then what? So goes an article in today's San Francisco Chronicle that suggests what we really need is economic stimulus that gets at the underlying causes of the financial crisis:
When the housing market boomed, so did consumption. With housing in free fall, people have tightened their belts, which has created a ripple effect on all sorts of businesses. Getting more money into consumers' hands is an obvious way to spur spending.
"I think we're going to need some serious fiscal stimulus," said Dean Baker, director of the Center for Economic and Policy Research in Washington, D.C. He said that might include money going to state and local governments, more spending on infrastructure and more unemployment insurance. "It has to be big money, bigger than the last round," he said, referring to the stimulus package enacted earlier this year.
Mike Lehmann, emeritus professor of economics at the University of San Francisco, said he thinks massive tax cuts for individuals, coupled with a massive increase in federal expenditures to create jobs, would stimulate overall consumption. "If you look at it as a serious emergency, we might be willing to increase the deficit," he said. "In one fell swoop we already increased the deficit by $700 billion, although there's a chance some of that will get repaid."
Both Dean Baker and Mike Lehmann might well be referring to something like Proposition 1A, which would help create exactly that kind of stimulus. 160,000 construction jobs is nothing to sneeze at in a state facing 7.7% unemployment and desperately in need of an economic boost.
HSR deniers never speak of these issues. To them the economic situation merely suggests we should kill HSR and do nothing, even though overdependence on oil is one of the root causes of this crisis. California faced exactly this same situation in the Great Depression, and voters chose to approve bonds for the Golden Gate Bridge and Shasta Dam anyway. Affordable borrowing to build long-term infrastructure that provides for short-term jobs and stimulus needs is exactly what this state needs to get going again. It's a proven solution that can work for us today.