Chairman Brian Wahby

November 23, 2009

The Bureau of Economic Analysis (BEA) reports that in the third quarter, real gross domestic product (GDP) increased 3.5% – the first growth of GDP in over a year. This growth, though robust in comparison to the deep constrictions experienced in the dark days of the Bush Administration has not resulted in job creation.   Following the Bush’s Wall Street bail-out (aka TARP) and President Obama’s Emergency stimulus package the US economy needs directed stimuli to spur growth in jobs and to significantly increase consumption.

Some economists have argued that the first round of stimulus was not big enough and others argue that it was perhaps mis-targeted. What we do know is that the first round did break the free-fall that our economy had been experiencing – and for that we should thank President Obama and the Democrats in Congress, but its impact to jump-start job growth and the resulting increase in consumption has been less than apparent.

This recession ultimately is about the demand curve.  You don’t need a PhD in economics to know that the economy is driven by demand (Consumption + Investment + Government Spending).  And what our economy needs to jolt growth is real increases in demand.  The by-far largest component of demand is consumption; that’s us buying and consuming products.  The recession has been marked by a constriction of consumption as consumers have felt less confident about their short term financial security and have increased savings while pulling back on spending.

A new round of stimulus that is designed to provide job security and increase consumption by encouraging the purchase of domestically produced products is just what the American people need to shift recovery into high gear and begin the process of sustained job growth.  Many will argue that we cannot spend our way out of this recession and that we need to be concerned with deficits in the long-term, but we should remember, as economist John Maynard Keynes said, “In the long run we will all be dead.” Although projected long-term deficits are troubling, the Clinton years demonstrated that it is possible to use targeted public investments and sound fiscal policy to significantly grow the economy and turn large deficits into even larger surpluses. (By the way, those arguing against deficit spending were the ones who had no problem wasting the Clinton-era surpluses with wasteful tax breaks for the rich and a trillion-dollar war of choice). We need to worry about today – and creating jobs today.

As policy makers in Washington begin to consider ways to spur recovery they need to employ a portion of the un-used TARP funds to do two things: a portion should be allocated toward deficit reduction and a portion should be directed as stimulus funds focused on cities and major metropolitan areas.  Cities are concentrated centers for commerce.  Where better to jump start the national economy than in places where commerce takes place and takes place quickly?  Cities by their nature are the most efficient market places, allowing for fast transfers, multiple transactions and rapid value creation.  Putting $1000 in the hands of an urbanite provides a much better chance that the money is spent in a number of places for multiple products, thus being turned over more rapidly through more transactions.

As the Congress finishes wrestling with the reform of healthcare (a policy that will yield great returns in the long-run) it is imperative that our federal government craft a second round of stimulus focused on job retention and creation, a policy that focuses economic activity in urban areas where dollars turn faster.  It makes good economic sense for America and for Democrats, it makes good political sense.