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Government can, should temper pain of recession

By Marilyn Watkins

It seems like the economic news keeps getting worse. Fuel prices still climbing, food prices soaring, foreclosures and layoffs. The only silver lining is that we're doing better in Washington than the rest of the country. Now a report has come out confirming what many of us suspected -- the rich are getting richer, while most of us are just getting by.

From the late 1990s to the mid-2000s, incomes of the wealthiest one fifth climbed faster than inflation, by 9 percent nationally and 12 percent here in Washington. In contrast, families in the bottom fifth lost ground, while those in the middle didn't gain enough to notice. The Economic Policy Institute and Center on Budget and Policy Priorities analyzed Census data to reach these conclusions.

All indicators suggest we're entering another recession. The Northwest got slammed by the 2001 recession. The high tech collapse and terrorist attacks hit Puget Sound's two most high-profile industries hard. It took until 2005 before jobs in this region started coming back. Then through the end of 2007 we enjoyed healthy job growth, and ended up with a stronger economy than the rest of the country.

But the benefits of that growth spurt went mainly to those on top. The majority worked hard just to stay even. Now we're facing another period of uncertainty. Some of our neighbors -- and some of us -- will get laid off, lose our homes, lose health insurance, struggle to pay for necessities.

Government policy can make a big difference in how quickly we recover from recession and how the fruits of a growing economy get distributed. Washington has already done a lot of what states can do. A decade ago, voters attached a cost of living adjustment to our minimum wage. Now the lowest paid workers don't lose ground to inflation. We've front loaded some construction projects, like starting the pontoons for the new 520 bridge, creating jobs now, while lowering long-run costs. And two new programs to boost family economic security are gearing up to start next year, tax rebates to low-income workers and family leave insurance, which will guarantee new parents a few weeks of paid time off starting in October 2009.

One important area where Washington can do better is unemployment insurance. In 2001, half of unemployed workers qualified for benefits, but in 2003 the Legislature made qualifying harder. Now less than one third of the unemployed get benefits. That hurts workers and businesses. Unemployment insurance both tides families over between jobs and helps businesses who rely on that family's patronage. Next session the Legislature needs to establish realistic qualifications for this essential safety net.

The federal government can do far more than states. Our slow recovery from the last recession and the growth in inequality can be largely attributed to failed federal policies. The Bush response to recession in 2001 was to cut taxes, mostly for the wealthy. According to an analysis by Citizens for Tax Justice, the average millionaire in our state is saving $69,500 on their 2007 federal income taxes because of those tax cuts.

Tax cuts for people who already have everything they need don't provide much economic stimulus. Businesses decide to expand when there's demand for their products, not because the wealthy have more to invest.

A better federal strategy would be to invest in infrastructure. We are surrounded by crumbling and outmoded highways, levies and other structures. The federal government should finance safe bridges, expanded mass transit, and energy efficient schools and other public buildings. These investments would immediately create good paying jobs and pave the way for broad-based economic growth.

The federal government should also provide block grants to state governments, all of which will face falling revenues and rising demand for services. It should provide extended unemployment benefits and health insurance for those who lose their jobs, and increase financial aid for higher education. And it should follow through with some pragmatic relief for homeowners caught up in the mortgage crisis.

We'll get through this recession. The question is, how much and how long will people suffer? And can we come out of it having made the investments that open doors of opportunity and lead us all to a better future?



Marilyn Watkins, policy director of the Economic Opportunity Instititue (www.eoionline.org), writes every other Wednesday. Her e-mail address is marilyn@eoionline.org.