Government Spending is Just What Our Economy Needs

About Heather Boushey:

Heather Boushey is a senior economist at the Center for American Progress. She co-edited The Shriver Report: A Woman’s Nation Changes Everything and was a lead author of "Bridging the Gaps," a 10-state study about how low and -moderate-income working families are left out of work support programs.

Our nation's economy is approaching a precipice. The continuing housing market crisis has stripped about $10 trillion from families' assets, and nearly 1 in 10 workers are unemployed. Nearly 1 in 10 others are either working less than they want or have given up their job search. Family income is now back where it was in 1996, in inflation-adjusted dollars.

This all means there is less money flowing through our economy. That's just math.

The lingering consequences of the Great Recession—the housing crisis, the jobs crisis, the fear among businesses to invest their earnings despite record profits—continue to pull against faster economic growth and job creation. Because customers have less money to spend due to the collapse of the housing bubble and the ensuing high unemployment, businesses have little incentive to hire and invest.

[Check out a roundup of editorial cartoons on the economy.]

Even Federal Reserve Chairman Ben Bernanke says there is a role for fiscal policy. Monetary authorities have already pushed interest rates down to zero. And they have few levers left to spur growth, although there are some steps that would continue to help on the margin.

In short, the economy continues to suffer from a lack of demand.

The federal government can help with this. We know that government spending can help restart an economy. Over the past two years, increased investments in infrastructure have saved or created 1.1 million jobs in the construction industry and 400,000 jobs in manufacturing by March 2011. Almost all of these jobs were in the private sector.

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Money targeted toward the long-term unemployed helped not only those individual families hardest hit by the Great Recession but also kept dollars flowing into their local communities, keeping an average of 1.6 million American workers in jobs every quarter during the recession. But now, the threat of jobs again disappearing looms large.

Unless Congress acts, the private sector will continue to generate insufficient demand. A sweeping consensus of economists and forecasters across the political divide now calls for the government to forcefully intervene in precisely this way, to create demand for goods and services, which will in turn boost hiring and business growth. Goldman Sachs, for example, said the positive effect of the president's American Jobs Act would increase U.S. gross domestic product by 1.5 percent in 2012.

Conservatives want us to believe that America's broke, that we cannot afford to address our most pressing issue—mass unemployment and stagnating incomes. The reality is that there are clear steps that we can take to pave the way for economic growth. Congress just needs to act.

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• Check out a roundup of editorial cartoons on the economy.

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economic stimulus