It was encouraging to hear President Bush and the congressional Democratic leadership promising this week to work together on an emergency economic rescue plan. Our hope is that they will act quickly, before the economy slips into recession. Our fear is that the effort will bog down in ideological posturing, leaving the rest of us to our fates.
The need for action could hardly be more urgent. After watching for months as a nationwide mortgage and housing failure mushroomed into a credit crisis, we are now witnessing a global financial panic. If prompt measures aren’t taken to kick-start America’s economy with a new infusion of liquidity, the next step could be worldwide recession.
The Federal Reserve took the first step toward rescue last weekend with its extraordinary cut in interest rates, the deepest one-time reduction since 1984. Lower interest should make it easier for businesses to borrow money and create jobs. On the other hand, it also might reduce the dollar’s appeal to foreign investors, cutting the steady influx of foreign capital that has allowed Americans to live beyond their means for two decades. It is a risky move either way, but something had to be done quickly.
If nothing else, the Fed signaled to the world last week, for the first time in a year, that someone in Washington realizes the economy is in crisis. It took a panic in stock markets from London to Tokyo, where traders were spooked by the wave of uncollectible American mortgage defaults gnawing through the world’s financial institutions like flesh-eating bacteria, to get Washington’s attention. In a moment of lucidity, some cooler heads have begun to confront the prospect of a worldwide economic collapse touched off by the recklessness and greed of America’s financial titans — and by the years of deregulation that left financiers free to concoct their fake mortgages and other Ponzi schemes without meaningful scrutiny.
But an interest rate cut by itself is not enough to stimulate the American economy and stem the global panic. Americans themselves need the confidence — and the money — to begin investing, buying and building again. For that, they need an injection of cash, so citizens can go out and buy the things they’ve put off, which will put the merchants, manufacturers and truckers back to work. No less important, it can save millions of Americans’ homes from foreclosure, put food on their tables and buy their kids new shoes. That is what is known as an economic stimulus.
The White House, Congress and the Federal Reserve are all aiming to find the combination of prods and incentives that will keep the economy moving through the mortgage crisis and beyond with the fewest bumps possible. Given the depth of corrosion under the surface — foreign debt, deindustrialization, bottom-line management, wage inequality — avoiding crisis will be a tall order. It’s important as the road gets rougher to remember who suffers the most when the economy goes sour.
Amid all the talk of interest rates and stimulus, one consequence of economic downturn was scarcely mentioned last week: the human suffering caused by unemployment, home foreclosure and scarcity. Nearly 40 million Americans live in poverty. Tens of millions more are just a paycheck away from disaster. As home foreclosures skyrocket, as companies cut production and lay off workers, the economic impact is sobering — but the human impact is devastating. That crisis must be at the core of any recovery plan.
An economy is nothing more than the combined process of humans working to provide food, clothing and shelter for themselves and their families. If a nation’s economy does not fulfill that cardinal task, it is failing, regardless of what the numbers say.