To Boost the Economy and Create More Jobs We Must First Help Those in Need

By Guest Writer, 1-28-09

By now we all know that the economy is in shambles.  The pundits and politicians are tossing not only blame but also proposing long term solutions. Yet it’s easy to forget who is hit the hardest in a recession.  From my vantage point as the leader of one of Western Montana’s oldest and largest nonprofits it is low-income women and children, the ones who barely get by even in good times, and who depend on agencies like the YWCA to give them a hand up after fleeing a violent relationship or living on the streets. They are most vulnerable to the effects of a recession. Please keep them in mind as you make your voices heard to Congress about the economic priorities of President Obama’s recovery plan in the coming weeks.

In testimony before Congress this month, conservative economist Mark Zandi of Moody’s Economy.Com said the fastest and most cost-effective form of government spending to jumpstart the economy was “extending unemployment insurance benefits, expanding the food stamp program and increasing aid to hard-pressed state and local governments.”

In Montana, where unemployment reached 5.4 percent in December, growing numbers of middle-income workers are losing their incomes, their homes and their health care. These Montanans are falling into poverty at an increasing rate. Obama’s plan to create millions of jobs by creating infrastructure programs to repair roads and schools and improve energy efficiency will provide much-needed relief as well as a long-term investment in the future.

But those projects will take time to set up, and an effective recovery plan must also get money into the economy as soon as possible. A report released this month by top Obama Administration economic advisors found that 83 percent of jobs generated by increased spending to help the most vulnerable Americans would materialize this year.  By contrast, 41 percent of the jobs generated by increased infrastructure spending would not be available until 2010 or 2011. 

By directly increasing spending, programs aimed at low-income people provide an economic boost that in itself creates jobs or prevents job loss. For every dollar the government provides for food stamps, for example, $1.73 flows into the economy, according to numbers compiled by Zandi. Congress should act immediately to pass an economic recovery package that includes a substantial two-year increase in food stamps. According to the Economic Policy Institute, the House bill increases the food stamp benefit by at least 13 percent, at a cost of $20 billion, creating or saving 185,000 jobs over two years. 

It might sound odd that increasing food stamp benefits could actually jumpstart the economy, especially in a state that prides itself on self-reliance.  Increasing food stamps would allow many more people in low-income communities to purchase goods at their local stores. That means that local merchants would not be forced to lay off people and might even be able to start hiring.  What’s more, the local grocer would also need to buy more goods from food wholesalers and local farmers, boosting the economic and job-generating prospects for those businesses as well. 

In much the same way, extending unemployment benefits provides money for people without jobs to spend in their local communities.  Zandi estimates that for every dollar spent on unemployment benefits, $1.63 is generated in economic growth.  Extending unemployment benefits for those out of work for more than six months, increasing benefits by $25 a week and allowing more of those without jobs to qualify, would create or save 339,000 jobs over two years, according to estimates provided by the Economic Policy Institute.

An effective economic recovery plan must also address growing state budget deficits, which are expected to reach $350 billion in the next two-and-a-half years and which have already resulted in cuts in jobs and services in nearly every state in the nation. Montana is one of the few states with a budget surplus, but in November Governor Schweitzer announced that the budget for the 2010 – 2011 fiscal year would be 2.5 percent less than the previous biennium.  Since November, the Legislature’s chief forecaster has reduced the state’s revenue projections two times.  In December he lowered projected revenue estimates by $135 million, and just last week he reduced the projections another $85 million for a total reduction of $220 million. This month, the governor’s budget director, David Ewer, has started notifying all legislators stating Schweitzer’s opposition to all bills with a fiscal note.

This problem can be addressed quickly by increasing the share paid by the federal government for Medicaid, education and other vital state and local services. Without a decisive response, ballooning state budget deficits will lead to a deeper recession and further cuts in programs that help the jobless and others in need.

Finally, tax cuts aimed at low-income families will have a far greater economic pay-off than decreases in corporate or capital gains taxes.  This is because like food stamps and unemployment benefits, the money would be spent immediately by those who would otherwise struggle to stay afloat. For example, the House proposal to decrease the amount of earnings needed to receive the Child Tax Credit would put much-needed (and quickly spent) income into the hands of the poorest Americans. Every dollar spent by the federal government on tax credits of this type expands the economy by $1.22, according to Mark Zandi. 

Recent polls show that the vast majority of Americans support increased federal spending to generate jobs and stimulate the economy – even if it means increasing the federal deficit.  As Congress considers the details of an economic recovery plan, please remember that the evidence shows that helping those in need is the quickest and most reliable way to help us all.

Cindy Weese is the executive director of YWCA Missoula

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